Date: Friday 29 Jun 2012
- EU leaders announce measures to combat crisis
- Spanish, Italian bond yields tumble
- Banks involved in another scandal
Markets across Europe celebrated this morning what most experts consider to have be surprising 'breakthrough' agreements from the first day of the European Council summit.
The agreements include: the ESM (permanent European rescue fund that goes into effect next Sunday) loan to Spanish banks will not have senior creditor status which effectively takes pressure off the country’s credit spread; the ESM will also be allowed to directly recapitalise banks once a supervisory body is set up which means that the rescue funds won’t be added to the country’s debt piles; the rescue funds themselves will be used more flexibly to support compliant countries; and finally, the European Central Bank (ECB) will be acting as an agent for the rescue funds in market operations.
“Expectations ahead of the summit were extremely low since EU leaders have disappointed so many times in the past, but now we’re seeing they’ve come out with concrete solutions,” said experts from Bank of Tokyo-Mitsubishi.
The news send bond yields in Spain and Italy tumbling this morning: the borrowing rate on a 10-year Spanish bond was down 32.7 basis points (bp) at 6.614%; while the Italian equivalent had dropped by 25.3bp to 5.942%.
Despite the conclusions having exceeded expectations, BarCap analyst Sara Yates says that the EU summit is "not a game changer" for the euro currency (EUR). With investors likely to remain cautious as growth in the Eurozone and structural changes take time to filter through, and the ECB likely to cut rates next week ("a move which is not fully price in by the market"), Yates says that the risk premium on the EUR will remain "elevated".
Following Barclays's 16% drop yesterday after it was found to have manipulated interbank lending rates, shares were swinging between gains and losses today after the Financial Services Authority (FSA) revealed it has found "serious failings" in the way lenders sold complicated interest rate protection products to businesses. Some businesses claim they have been bankrupted by the liabilities they took on when entering the so-called “swap” arrangements.
Yesterday's news prompted calls for the resignation of Barclays CEO Bob Diamond and today's developments will have further dented confidence in the British lender. Oriel Securities downgraded its rating for Barclays this morning to 'hold'. Heading the other way were sector peers Lloyds, HSBC and RBS who were making gains this morning as they pulled back after yesterday's sharp falls.
Outsourcing group Serco rose after completing the disposal of its Technical Services business to engineering giant AMEC for £137m.
Mining stocks were putting in decent performances as commodities prices rallied on the back of the EU summit. Vedanta, Antofagasta, Rio Tinto, ENRC and Kazakhmys were among the best performers.
Telecoms giant Vodafone was lower after Jefferies downgraded its rating on the stock from 'buy' to 'hold', highlighting threats from competitor fightbacks and this company's dependence on Verizon Wireless.
House-builder Berkeley Group jumped after seeing both revenues and profits surge in the 2011/2012 fiscal year and saying it would hit its medium-term profit targets quicker than first thought.
Two weeks after confirming speculation that it was interested in German engineering group Elster, buy-out firm Melrose said that it is looking to take over the firm by spending $2.3bn, or £1.5bn, causing shares to slip today. Melrose will finance the acquisition and expenses through a combination of new debt and by way of a £1.2bn fully underwritten rights issue.
FTSE 100 - Risers
Evraz (EVR) 253.70p +5.27%
CRH (CRH) 1,208.00p +5.23%
Vedanta Resources (VED) 914.50p +4.93%
Antofagasta (ANTO) 1,089.00p +4.11%
Weir Group (WEIR) 1,509.00p +4.07%
Hammerson (HMSO) 444.40p +3.66%
Fresnillo (FRES) 1,465.00p +3.53%
Kazakhmys (KAZ) 710.50p +3.50%
Hargreaves Lansdown (HL.) 520.00p +3.38%
Rio Tinto (RIO) 3,011.00p +3.36%
FTSE 100 - Fallers
Barclays (BARC) 162.95p -1.60%
Pennon Group (PNN) 765.50p -1.48%
Vodafone Group (VOD) 179.35p -0.80%
GlaxoSmithKline (GSK) 1,437.50p -0.59%
Tesco (TSCO) 310.25p -0.51%
Morrison (Wm) Supermarkets (MRW) 265.10p -0.38%
Severn Trent (SVT) 1,644.00p -0.06%
United Utilities Group (UU.) 674.50p 0.00%
Centrica (CNA) 316.40p 0.00%
Experian (EXPN) 899.50p +0.06%
FTSE 250 - Risers
Talvivaara Mining Company (TALV) 168.40p +7.26%
Barratt Developments (BDEV) 137.70p +5.76%
Bellway (BWY) 829.50p +5.47%
Persimmon (PSN) 600.50p +5.35%
Taylor Wimpey (TW.) 47.59p +5.15%
Afren (AFR) 103.10p +4.78%
Travis Perkins (TPK) 960.50p +4.63%
Intermediate Capital Group (ICP) 268.40p +4.56%
Henderson Group (HGG) 100.20p +4.48%
Smith (DS) (SMDS) 145.50p +4.45%
FTSE 250 - Fallers
Ocado Group (OCDO) 75.45p -5.09%
Stobart Group Ltd. (STOB) 112.00p -2.18%
Spirit Pub Company (SPRT) 50.00p -1.48%
Melrose (MRO) 363.70p -1.36%
Barr (A.G.) (BAG) 398.30p -1.29%
Petra Diamonds Ltd.(DI) (PDL) 119.90p -1.15%
Ruspetro (RPO) 131.00p -1.13%
Synergy Health (SYR) 901.00p -0.99%
Kier Group (KIE) 1,242.00p -0.88%
BH Global Ltd. USD Shares (BHGU) 11.16 -0.71%
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