Date: Monday 20 Aug 2012
- Bundesbank expresses critical opinion of ECB bond-buying
- ECB considering capping bond spreads
- Xstrata down on concerns over Glencore merger
After a subdued start, the Footsie dropped into the red in afternoon trade as Germany’s Bundesbank reiterated its critical stance on the bond-buying proposal by the European Central Bank (ECB).
“All it took to reverse this morning's positive start to the trading session was for the Bundesbank to puncture this weekend's recycled story about the ECB capping peripheral bond yields. Today's market reaction really shouldn't have been a surprise given previous push back on this particular trial balloon,” said senior market analyst Michael Hewson from CMC Markets.
The Bundesbank restated its opposition to the ECB's intervention in the bond markets, saying: "The Bundesbank remains critical of the purchase of euro system sovereign bonds, which comes with considerable risks for stability. Decisions about a possibly even broader mutualisation of solvency risks should be anchored in financial policy, meaning with the governments and parliaments, and should not occur via central bank balances."
A report over the weekend in Der Spiegel said that the ECB is considering setting caps on bond spreads in southern Europe in order to help keep a lid on periphery country borrowing costs. However, the spokesman of Germany's Finance ministry that he does not know of any ECB plan to target bond spreads.
Luis de Guindos, Spain's Finance Minister, said that his country would like the ECB to commit to unlimited intervention in second sovereign debt markets before it officially requests financial aid. 10-year Spanish bond yields continued to decline today, down 16.1 basis points at 6.28%, well below the 7.62% level reached in July.
In other news, Asian stocks slipped overnight as hopes for Chinese stimulus fade. Investors are concerned that policy-makers will refrain from further easing after a rebound in property prices during the month of July.
Mining giant Xstrata was among the worst performers on reports that Qatar Holding had raised its stake in the firm, adding to speculation that the investment fund is attempting to build its stake to block the proposed merger with Glencore International. The Qataris are demanding an offer sweeter than 2.8 Glencore shares per Xstrata share.
Meanwhile, sector peers ENRC was sold off after Credit Suisse downgraded its rating on the stock from 'outperform' to 'neutral', saying that earnings will weaken "substantially" over the next year. Evraz, Vedanta and Fresnillo were also out of favour.
Security giant G4S rose after The Financial Times said that the group would pull its operations out of Pakistan due to "an increasingly hostile environment for foreign security companies".
Johnnie Walker whiskey maker Diageo was making gains on reports that it was closing in on a $3bn (£1.9bn) deal to acquire Jose Cuervo tequila. The firm already distributes the tequila brand globally.
Software firm Sage was on the up after the co-chief executive of German software giant SAP said that the company wanted to make more acquisitions.
Defence group Chemring sank 10% as Friday’s euphoria following a “highly preliminary expression of interest” from The Carlyle Group quickly faded. UBS said: “We would advocate a degree of caution as the release states ‘highly preliminary’ and that CHG was required to issue a statement because of the strong share price movement on Friday (+10% before the release), implying a reasonable chance that the bid does not materialise.”
Insurance and reinsurance firm Amlin was higher after revealing a first-half profit compared to a loss the same time a year earlier as catastrophe loss activity reduced sharply.
Platinum miner Lonmin was lower, extending last week's losses, on developments from its Marikana mine in South Africa at which over 30 people were killed last week after protests about pay.
FTSE 100 - Risers
British Land Co (BLND) 543.50p +0.65%
Compass Group (CPG) 719.50p +0.63%
Lloyds Banking Group (LLOY) 34.43p +0.61%
SSE (SSE) 1,342.00p +0.52%
Admiral Group (ADM) 1,179.00p +0.51%
Glencore International (GLEN) 353.75p +0.45%
Smith & Nephew (SN.) 665.00p +0.45%
Vodafone Group (VOD) 186.75p +0.43%
Carnival (CCL) 2,179.00p +0.41%
Sage Group (SGE) 302.60p +0.40%
FTSE 100 - Fallers
Evraz (EVR) 259.20p -4.18%
Eurasian Natural Resources Corp. (ENRC) 357.00p -3.44%
Xstrata (XTA) 907.50p -3.39%
Kazakhmys (KAZ) 716.50p -3.18%
Vedanta Resources (VED) 925.00p -2.79%
Fresnillo (FRES) 1,494.00p -1.97%
Resolution Ltd. (RSL) 221.50p -1.90%
Rolls-Royce Holdings (RR.) 849.00p -1.85%
Wolseley (WOS) 2,483.00p -1.82%
Rexam (REX) 436.70p -1.78%
FTSE 250 - Risers
Home Retail Group (HOME) 96.25p +3.55%
Bank of Georgia Holdings (BGEO) 1,200.00p +2.56%
Senior (SNR) 212.40p +2.26%
Computacenter (CCC) 368.10p +2.25%
Paragon Group Of Companies (PAG) 190.00p +2.21%
Barratt Developments (BDEV) 152.20p +2.15%
NMC Health (NMC) 197.80p +2.12%
Howden Joinery Group (HWDN) 145.50p +2.11%
Amlin (AML) 389.10p +2.10%
Micro Focus International (MCRO) 561.00p +2.09%
FTSE 250 - Fallers
Chemring Group (CHG) 373.90p -9.84%
Lonmin (LMI) 610.00p -4.61%
Dunelm Group (DNLM) 542.50p -3.81%
Rathbone Brothers (RAT) 1,274.00p -3.63%
Centamin (DI) (CEY) 71.10p -3.53%
Michael Page International (MPI) 371.10p -3.23%
Ferrexpo (FXPO) 194.70p -2.99%
IG Group Holdings (IGG) 437.50p -2.65%
Ocado Group (OCDO) 68.15p -2.64%
London Stock Exchange Group (LSE) 1,013.00p -2.60%
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