Sector movers: Mining stocks rally on Chinese stimulus, but defensives fall

A surprise interest-rate cut in China saw equity markets surge on Friday with cyclical mining stocks benefiting and defensive stocks feeling the brunt from an increase in risk appetite.

Cyclical sectors are those that are closely and positively correlated to economic activity and, in the case of the mining industry, particularity the outlook for top metals user China.

Fears about a harsh slowdown in economic growth in China always tend to weigh heavily on listed mining companies with stocks especially under pressure on Thursday after data revealed that the Chinese manufacturing sector stagnated this month.

The People's Bank of China responded by lowering its one-year lending rate and deposit rate for the first time in two years in an effort to shore up growth. It also gave banks more freedom to set deposit rates in an attempt to boost lending.

The result was a big jump in share prices across the mining sector, with blue chips Anglo American, Fresnillo, Rio Tinto, BHP Billiton, Antofagasta and Glencore all rising by at least 4%.

Gold rallied on the back of China stimulus to its highest in three weeks, rising 1% to $1,202.90 an ounce on the Comex in New York.

"Gold benefited from China’s cut interest rates [...]. Gold has been suffering recently due to the strength of the US economy, but this moment of weakness from China has provided the commodity with a much needed boost," said analyst Connor Campbell from Spreadex.

Gold producers Randgold Resources and Centamin were also putting in decent gains.

On the other side of the coin, shares in defensive sectors such as tobacco, utilities and transport were unwanted.

Defensives are those stocks that tend to remain relatively stable in times of economic volatility.

Cigarette maker Imperial Tobacco, electricity and gas providers SSE and Centrica, and distribution and logistics firm Stobart Group were all trading in the red.

British Gas owner Centrica in particular was extending losses after a profit warning on Thursday, as the company lowered its earnings forecast on the back of mild weather.

Top performing sectors so far today

Mining 15,812.32 +5.86%
Industrial Metals & Mining 1,490.09 +5.80%
Construction & Materials 3,856.08 +3.18%
Forestry & Paper 11,848.49 +3.00%
Industrial Engineering 9,062.58 +2.41%

Bottom performing sectors so far today
Travel & Leisure 7,690.45 -0.17%
Tobacco 42,587.20 -0.16%
Gas, Water & Multiutilities 6,247.69 -0.11%
Industrial Transportation 2,750.07 -0.06%