London midday: Banks lift Footsie on euro optimism

Date: Monday 05 Dec 2011

Hopes that leaders can bring an end to the euro crisis lifted markets on Monday. Many believe that it is now make-or-break time for the single currency, echoing remarks made last week by Economic and Monetary Affairs Commissioner Olli Rehn that the continent had just 10 days to save the euro. The deadline for those 10 days coincides with the EU summit, which is to be held on Friday 9 December.

MAKE-OR-BREAK TIME FOR EURO

As we gear up for the summit, which is to focus on proposals to move euro area countries further towards closer economic and fiscal union, the German Chancellor Angela Merkel and the French President Nicolas Sarkozy will kick off the week of high profile meetings at 12:30 today with a press conference expected to be held afterwards.

After presenting their views last week, these two leaders - often dubbed “Merkozy”- are working to fine-tune their proposals for presentation to European Union leaders Thursday in preparation for the summit the following day. The bone of contention between the two parties continues to be that while Merkel seeks other states surrendering budgetary control to a European authority with veto power, Sarkozy is under increasing pressure from constituents about handing French sovereignty over on a plate. Under discussion are such items as the role of the European Central Bank (ECB) as a lender of last resort or how to implement sanctions against eurozone countries that break deficit rules.

"As the euro area crisis moves towards a critical point, the week ahead looks to be make or break. Euro leaders appear to be gravitating around an IMF-centred solution, with the detail still to be defined. The event of the week is likely to be the EU Leaders' Summit on Friday with a pre-Summit dinner scheduled for Thursday night too," said analysts at Investec.

ITALY APPROVES AUSTERITY PACKAGE, YIELDS FALL

In other euro-related news, Italian Prime Minister Mario Monti announced yesterday that his government has approved a new package of austerity measures through 2014 worth €24bn. The plan includes more than €12bn in spending cuts.

The announcement prompted a 52 basis point drop in the Italian 10-year bond yield, which stood at 6.16% by midday, well below the +7.4% level seen last month.

Also on investors’ radars is this week’s meeting of the ECB on Thursday; even a 50 basis point reduction in the central bank’s target rate is possible, as are further measures to ease banks’ funding pressures.

Euro optimism has boosted US stock futures, which are pointing to a positive start stateside. Data for October's factory orders and the ISM non-manufacturing report are due out after the opening bell on Wall Street.

Closer to home, the Markit/CIPS service sector purchasing managers’ index for the month of November has come in at 52.1 points, versus 51.3 for the month before. The consensus expectation was for a reading of 50.7. UK service sector activity rose for an eleventh successive month in a row, but at a modest pace as incoming new business increased at the slowest rate of the year so far.

BANKS RISE, MICHAEL PAGE PLUMMETS

In London, the banks continued to lift the Footsie, with Lloyds leading the way rising over 8%. RBS, Barclays and HSBC were also making gains. Banks across Europe were higher as of midday, rising an average 2%, according to the STOXX Europe 600 Banks index.

Luxury brand Burberry - heavily exposed to the fast-growing Chinese market - was the heaviest faller of the day after the HSBC Chinese service sector purchasing managers' index (PMI) for the month of November has come in at 52.5, versus 54.1 the month before, signalling only a modest rise in service sector activity. Worth noting, the service PMI’s long-run average is at 56.9.

On the FTSE 250, recruitment firm Michael Page International plummeted after warning on full-year profits following a significant slow-down in growth in the fourth quarter. Shares dropped nearly 13% after the group said that the Eurozone crisis has “reduced client and candidate confidence”. Both Investec and Seymour Pierce have cut their target prices on the stock. Sector peers Hays was also out of favour.

TUI Travel, a high riser early on, has fallen into the red after posting a 25% increase in annual pre-tax profit this morning. Evolution Securities analyst James Hollins said: "Looking beyond the headlines to the outlook and we see a very different story of bookings slowing since its last statement. With a tough consumer outlook and a desperate need for radical changes to its operating model in core territories, we retain our sell recommendation and regard the recent shares rally as a false dawn."

Aberdeen Asset Management was firmer after seeing underlying pre-tax profits jump 44% in the year ended 30 September. The firm's full-year dividend increased from 7p to 9p per share.

Online fashion retailer ASOS was making gains after Peel Hunt upgraded the group from hold to buy.

BC

FTSE 100 - Risers
Lloyds Banking Group (LLOY) 27.50p +8.33%
Royal Bank of Scotland Group (RBS) 22.75p +5.18%
BT Group (BT.A) 191.30p +3.13%
Barclays (BARC) 196.30p +2.96%
Cairn Energy (CNE) 282.00p +2.92%
Essar Energy (ESSR) 251.90p +2.65%
Schroders (SDR) 1,413.00p +2.17%
Petrofac Ltd. (PFC) 1,485.00p +1.99%
Man Group (EMG) 144.90p +1.76%
Resolution Ltd. (RSL) 257.50p +1.74%

FTSE 100 - Fallers
Burberry Group (BRBY) 1,287.00p -2.20%
Next (NXT) 2,671.00p -1.69%
Smith & Nephew (SN.) 588.50p -1.26%
ARM Holdings (ARM) 593.50p -1.17%
Shire Plc (SHP) 2,108.00p -0.99%
Rolls-Royce Group (RR.) 715.50p -0.69%
British Land Co (BLND) 500.50p -0.60%
Marks & Spencer Group (MKS) 328.20p -0.58%
GlaxoSmithKline (GSK) 1,414.00p -0.53%
GKN (GKN) 192.80p -0.46%

FTSE 250 - Risers
Pace (PIC) 65.75p +14.85%
Cape (CIU) 355.80p +7.17%
Brewin Dolphin Holdings (BRW) 136.00p +6.42%
International Personal Finance (IPF) 216.40p +5.30%
Aberdeen Asset Management (ADN) 214.00p +5.21%
Premier Foods (PFD) 5.77p +5.10%
ITE Group (ITE) 216.50p +4.59%
Kenmare Resources (KMR) 35.62p +4.40%
Renishaw (RSW) 937.00p +3.94%
SDL (SDL) 654.50p +3.81%

FTSE 250 - Fallers
Michael Page International (MPI) 320.00p -12.33%
Regus (RGU) 88.00p -4.81%
Bellway (BWY) 743.00p -4.31%
Hays (HAS) 69.10p -2.95%
Berkeley Group Holdings (BKG) 1,320.00p -2.94%
Bovis Homes Group (BVS) 485.80p -2.76%
Daejan Holdings (DJAN) 2,600.00p -2.26%
Persimmon (PSN) 499.00p -2.16%
SEGRO (SGRO) 221.40p -1.69%
Salamander Energy (SMDR) 210.80p -1.45%

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