Market Report: Kazakhmys exploits rich seam for miners

Kazakhmys gained ground last night amid hopes that the mining sector, which has been rallying with the wider market since March last year, would continue to strengthen in the months ahead.

The stock rose as Cazenove, which turned positive on the sector in April, said there was scope for "some aggressive increases" to sector consensus forecasts for the current year. Looking back, though the upside seems to have been more obvious in 2009 – commodities were trading well below production costs, production was being scaled back, share prices had slumped and central banks were taking unprecedented steps to stimulate their economies – a number of drivers remain in sight.

Economic growth in Brazil, Russia, India and China, for example, and restocking and supply issues in the US and in Europe bode well, the broker said. Increased infrastructure spending is also supportive, with India's ambitions "starting to create tightness in some commodities".

"The biggest recent positive driver has been the massive injection of money into commodity focused funds and the key question will be how long this can continue," Cazenove said. "Our intuitive view would be for at least six months or until global interest rates begin to rise, which feels unlikely until tangible signs of Western industrial demand and/or inflation emerge."

The broker went on to reiterate its "outperform" stance on Kazakhmys, which rose by almost 2 per cent, or 27p, to 1463p despite some pressure on metals prices. Worries about a move towards tighter monetary policy in China – the country's central bank raised the interest rate on its three month bills for the first time since August – dampened sentiment around Cazenove's other "outperform" rated stocks, with Antofagasta losing 15p to 1023p, Rio Tinto weakening by 4p to 3637.5p and Xstrata easing by 10.5p to 1218.5p. Vedanta Resources, which was upgraded to "outperform", rose by 5p to 2835p.

Overall, the FTSE 100 was broadly unchanged at 5526.72, down 3.32 points, while the mid-cap FTSE 250 index gained 40.85 points to 9630.38. Equities were unmoved by the latest announcement from the Bank of England, with the Monetary Policy Committee opting to keep interest rates and the parameters of the quantitative easing programme unchanged.

Traders were instead focused on the US non-farm payrolls report, which is due out later today. A positive reading is expected to drive world markets to fresh highs. A negative report may spark sell-off, traders said, as it would raise doubts about the recovery prospects of the world's largest economy.

Parts of the banking sector were in favour yet again, though the Royal Bank of Scotland lost just over 2 per cent, or 0.81p, to 35.87p, with the losses being put down to profit taking. Lloyds Banking Group led the way, rising by more than 4 per cent, or 2.34p, to 56.93p, while Barclays strengthened by almost 3 per cent, or 8.5p, to 315.5p. HSBC and Standard Chartered were lower, losing 3.9p to 736.5p and 15p to 1604.5p respectively. In the wider financials space, the insurer Legal & General, up 2.1 per cent, or 1.7p, at 81.8p, was the subject of renewed bid chatter. Other insurers were unsettled, with Standard Life easing by 2.6 per cent, or 5.5p, to 210.5p, Prudential declining to 628.5p, down 2.6 per cent, or 17p, and Aviva losing 6.8p to 403p.

Elsewhere, supermarkets were firm after J Sainsbury issued a strong trading update. Sainsbury's gained 3.2 per cent. or 10.2p. to 328.2p, while WM Morrison Supermarkets rose by 5.8p to 282.2p and Tesco was broadly unchanged at 412p. In the wider retail sector, Marks & Spencer continued to drift lower, retreating by 1.7per cent, or 6.4p, to 371. Next was 2 per cent, or 42p, weaker at 2059p, while the Argos-owner Home Retail Group fell to 280.2p, down 3.3p.

UBS boosted sentiment around Wolseley, the construction materials group, which rallied by 3.6 per cent, or 49p, to 1410p after the broker switched its stance to "buy" from "neutral". UBS said the focus now was on the strategic review in March 2010, when the group is expected to set out margin targets for the medium term.

"We believe the important catalyst will be the chief executive's capital allocation strategy, which of course will highlight what is core, what will be slimmed down and what may be sold in due course," UBS added, raising its target for the stock to 1585p from 1505p. The broker also added Wolseley to its "most preferred list" of European construction stocks.

Further afield, Yell, the directories group, was driven lower after Goldman Sachs downgraded the stock to "sell" from "neutral", citing the risk posed by structural threats, which it said may hinder a cyclical recovery. "Evidence suggests that UK print usage has fallen over 30 per cent in the last few years, and we believe this has only begun to impact print growth over the last year or two," the broker said. "Online growth has begun to recover and competition from Google is intensifying. Overall, this will likely limit future [earnings] growth and de-leveraging, meaning re-financing in 2013 could still be difficult."