12/03/10 - 11:00
Anthony Grech - Reseach Analyst, IG Index
The FTSE 100 fluctuated between gains and losses this morning following a tug of war between banks and miners.
Banks were higher on the view that after talks, banking reforms in the United States could be watered down.
'The capital markets are healthier; the economy at least is purported to be on the road to recovery. So I think it has definitely taken some of the urgency out of the equation, and it's also taken some of the emotion out of the equation,' NYSE Euronext CEO Duncan Niederauer told Reuters News yesterday.
In addition, US Senator Christopher Dodd, chairman of the Banking Committee, on Thursday said he would present his own version of a financial reform bill after compromise talks with Republicans stalled.
This news fuelled gains across US banking stocks yesterday and sparked a banking rally in London this morning. Consequently, Barclays shares rose 2.1% to 351p, Lloyds Banking Group climbed 3.2% to 58.37p and Royal Bank of Scotland rallied 4.2% to 42.25p.
HSBC underperformed the sector, however, falling 0.7% to 689.6p following declines in Hong Kong and data theft by a former employee at its Swiss private bank.
China’s stocks dropped the most in a week, as investors feared the government will tighten monetary policy to control inflationary pressures and avert domestic asset bubbles.
'There’s speculation that the reserve ratio or interest rates will be raised over the weekend,' said Zhang Gang of Central China Securities Holdings Co.'The market is concerned that the government will act after this week’s NPC meeting,' he said, referring to the ongoing annual legislative meetings of the National People's Congress. [1]
The predictable effects of prospective additional policy tightening in China on the country’s demand for commodities also weighed on FTSE-listed miners during the early morning session. Antofagasta, Anglo American, BHP Billiton and Xstrata were the sector's worst performers, down between 0.14% and 0.70%. Rio Tinto, Eurasian and Lonmin pared earlier losses, meanwhile, as the domestic banking sector rally reignited risk appetite.
By 10:30am (London time) the FTSE 100 was trading up 22.72 points (+0.40%) to 5639.98 while the broader FTSE 250 was 83.64 points (+0.85%) above its previous close at 9938.08.
In today's corporate news, Liberty, the 134-year old luxury department store group, has confirmed that it has received takeover approaches. Whether this will lead to an offer being made remains to be seen.
Upmarket cooker manufacturer Aga Rangemaster Group plc climbed 1.7% to 122p after unveiling a pick-up in second-half sales. Elsewhere, British Airways rose 2% to 234.9p as investors speculated that strike action at the airline could be avoided. Unions have until March 15 to notify BA of their intentions.
Meanwhile, Burberry made the headlines today as well. It transpires that the company is suing US chain TJ Maxx for 'attempting to target its customers' by selling 'counterfeit' goods using Burberry’s trademark check pattern, TJ Maxx has denied that the use of check patterns was an attempt to persuade customers that they were buying Burberry products, however. Burberry's shares fell 0.15% to 684p.
In the absence of any domestic news, investors will be watching out for this afternoon's US retail sales and Reuters/Michigan consumer sentiment index, due at 1:30pm and 2:55pm (London time) respectively. US business inventory figures will follow at 3pm.
[1] Bloomberg News (12 March 2010)
The above comments do not constitute investment advice and IG Index accepts no responsibility for any use that may be made of them.
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