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Aviva and Barclays compete for FTSE top spot

MARKET BLOG: Barclays zig-zags to the top of a rising FTSE. AstraZeneca shares move higher after joint purchase of Amylin.

Aviva and Barclays compete for FTSE top spot
  • Barclays shares higher & volatile after chairman quits
  • FTSE 100 rises, building on Friday's EU summit-inspired gains
  • US markets open slightly higher, but drop sharply after weak manufacturing report
  • Oil price drops sharply after weak Chinese economic data
  • AstraZeneca shares rise after Amylin deal that one analyst describes as 'desperate'
  • Aviva shares jump as investors await overhaul
  • David Cameron announces probe into bank rate-fixing

16.05: Those US stock market gains were short-lived. Shares fell sharply (Dow down 0.6% at 12,803) after the release of a report showing economic activity in the manufacturing sector contracted in June for the first time since July 2009.

The PMI registered 49.7%, a decrease of 3.8 percentage points from May's reading of 53.5%, the US Institute for Supply Management reported. As well as being well below economists' forecasts, that's contraction territory; a number below 50 indicates economic shrinkage.

'The June results are consistent with our view that the uncertainty in the economic and tax policy outlook has left businesses unwilling to invest,' commented Bricklin Dwyer of BNP Paribas.

The FTSE 100 remains strong in the face of the US uncertainty, up 0.9% at 5624

Cameron announces banking inquiry

15.48: Prime minister David Cameron has announced that a full parliamentary committee will hold an inquiry into the rate-rigging scandal, to start immediately. 

The committee, which will be chaired by MP Andrew Tyrie, chairman of the Treasury committee, will be able to take evidence under oath and will have full access to ministers – including those from the last government, Cameron said in parliament ‘so we can make sure this never happens again’.

Labour leader Ed Miliband responded by calling for a truly independent investigation, free of political input.

Chancellor George Osborne was due to provide more details in a speech later this afternoon.

'Watershed moment' for banks

15.01: We’ll be keeping an eye on British bank shares this afternoon. Chancellor George Osborne is set to make announcement on banking, with reports that he will announce a review that will extend beyond a Libor probe and delve into banking standards and culture – which Bank of England governor Mervyn King described as ‘shoddy’ last week.

According to a report on Reuters, Tracey McDermott, the Financial Service Authority (FSA)'s enforcement chief told a conference today:

'Perhaps the reaction to the penalty imposed last week on Barclays will be a watershed moment, the point when the industry realises that it also has to rise to the challenge and to recognise that things have to change.'

Meanwhile, battered Barclays shares are sailing higher, up 3.3% or 5.3p to 168.

Weakest manufacturing expansion for 18 months in US

14.51: More signs that the US economy is losing its momentum: the Markit PMI has come in at 52.5 (above 50 indicates expansion), down from 54.0 in May and the weakest improvement in business conditions in 18 months.

Ahead of a clutch of other US data, markets have opened a notch higher stateside with the Dow advancing 0.1% to 12,893 and the S&P 500 flat at 1,361.

Soco shoots higher on FTSE 250

11.48: Among big FTSE 250 movers oil exploration company Soco International (SIA.L) has soared to the top of the index, up 26.3p, or 9.1%, to 316p after it made a ‘conditional’ offer to Lizeroux Oil to buy the outstanding minority interest in Soco Vietnam. The group has offered £60.5 million for the 20% stake in the Vietnamese operations, which will allow it to take control of the company.

Miner Avocet Mining (AVM.L), meanwhile, shed 6.3p, or 7%, to 83.8p as analysts reacted to the company’s cut in expected output. Forecast production at its operations in Burkina Faso was reduced from 160,000 ounces to 135,000 ounces following a tough second quarter at its Inata mine. Its share price fell following a raft of downgrades from JP Morgan, Numis, RBC and Canaccord Genuity.  

Aviva gains as investors await overhaul

10.43: Hard-hit Aviva (AV.L) shares are benefiting from the news that the insurance giant is poised to announce details of a ‘radical’ overhaul this week.

According to a report in the Sunday Telegraph, new executive chairman John McFarlane will reveal in a presentation this week that between 10 and 15 of 58 business divisions could be sold or wound down.

This from the Telegraph report:

‘The sale and closure process will mean that Aviva profits are likely to fall and net assets will be reduced. But with the reduction of poorly performing units, the release of capital and the cancelling of bad debts, tangible net worth will increase, the presentation is likely to say. Return on equity should also be improved.’

James Pearce, an analyst at UBS, wrote in a note this morning that if Aviva were to sell its US and Canadian businesses, as well as what remains of its stake in Delta Lloyd (which it cut last year) it would ‘transform perceptions of Aviva’s balance sheet risk at an acceptable dilution cost, and avoid a dividend cut or rights issue’. Pearce retained his ‘buy’ rating on the company.

This morning Aviva – a dividend favourite among UK investors – announced that Lord Sharman of Redlynch retired as chairman of the board.

Shares are competing with Barclays for top spot on the FTSE 100, up 3% to 280p.

Please visit our full site to view this interactive chart

Eurozone jobless rate edges up

10.18: Eurozone unemployment continues to edge higher, up to 11.1% in May, compared with 11.0% in April: a reminder if ever one was needed of the weak economic state of the currency bloc

That’s just above the broader EU rate, which ticked up to 10.3% in May. The figures are as expected by economists.

The chart, from Eurostat, highlights the huge disparities across Europe.

Unemployment in Europe: Click to enlarge

UK manufacturing a drag on the economy

10.05: First the good news: the UK’s long-suffering manufacturing sector looked just a smidgeon healthier in June than it did in May.

But the bad news: the Markit PMI measured 48.6 in June, up from May’s three-year low of 45.9 but still below the 50 mark above which signifies expansion.

‘The second quarter as a whole is looking weaker than the first quarter, suggesting manufacturing output may have contracted by at least 0.5% and therefore acting as a substantial drag on the economy for the fourth successive quarter,’ concluded Rob Dobson, senior economist at Markit.

The data have been uniformly weak and the scene is still set for an expansion to the Bank of England’s quantitative easing (QE) programme when the monetary policy committee votes on Thursday.

Investors send volatile Barclays shares higher

09.42: Investors really don’t know what to do with Barclays today after the bank’s chairman quit over the Libor scandal. The shares have zig-zagged, but are now the biggest riser, up 5% to 171p, as investors consider what's next.

The latest analyst reaction to the fine imposed on the bank – and subsequent uncertainties – comes from UBS. The Swiss bank reiterated its ‘buy’ rating, but reduced its price target by 7% to 200p ‘to recognise the additional uncertainty and we recognise that there may be nearterm volatility in the shares’.

UBS reckons the sharp sell-off on Thursday was ‘out of proportion’ with the financial impact of the £290 million penalty for Libor manipulation.

Meanwhile, David Cumming, head of UK equities at Standard Life Investments, told Citywire that now is the time to buy banks: ‘Although this week's events have obviously had an impact on the share price of Barclays and other major UK banks, in the longer term we continue to be positive on the outlook for financials including Barclays.'

AstraZeneca deal: 'desperation' or positive move?

08.50: Analysts are divided over news that AstraZeneca (AZN.L) is to buy US-based diabetes drugsmaker Amylin in a deal worth $7 billion in total with Bristol-Myers Squibb.

Mike Mitchell of Seymour Pierce sticks with his 'reduce' rating, pointing to the ‘desperation’ the deal signifies for Astra in terms of pipeline-filling; Gbola Amusa of UBS, though, has a ‘buy’ rating, pointing to positives from the deal.

Mitchell is ‘uninspired’ by the terms of the deal. He notes that Amylin is loss-making, while AstraZeneca will not have equal governance rights to 'key strategic and financial decisions' until it pays an additional $135 million.

On the contrary, Amusa’s positives for Astra include the ‘reasonable’ price ($31/share) that does not affect 2012 AZN guidance; the impact on earnings per share (EPS) will be positive by 2014; AZN/BMY have chosen to share risk, ‘which boosts synergies’; and AZN/BMY will gain scale in their diabetes collaboration.

The news, confirmed by Astra in a statement this morning, has so far not strongly swayed investors hoping for a turn-around in the company’s fortunes. Shares are up 0.3% or 11p to £28,64, rising in line with the FTSE 100.

Banks and oil drop

08.21: Bank shares are falling again:

RBS (RBS.L) leads the pack lower, with shares off 6.6p or 3% to 208p.

Barclays (BARC.L) is 0.9% lower to 161p.

HSBC (HSBA.L) has dropped 0.4% to 558p.

The oil price is also slipping lower after weak economic figures from China. Brent crude futures are trading down 1.4% at $96 per barrel.

Agius quits, says sorry

08.06: Barclays has announced that chairman Marcus Agius is resigning after the Libor scandal – but chief executive Bob Diamond clings onto this role amid calls for his resignation.

In a statement this morning Agius said: ‘As chairman, I am the ultimate guardian of the bank's reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside.’

Agius will remain in his role, which he has held for six years, ‘until an orderly succession is assured’.

He said he was 'truly sorry that our customers, clients, employees and shareholders have been let down'.

The same statement also announces an audit of Barclays’ business practices to be led by an independent party.

The bank's shares dropped in early trading to 161p, a decline of 0.6%, before rising to the top of the FTSE 100 at 164p.

The FTSE 100 has opened just higher at 5,575.

Chinese data better than expected, yet weak

07.56: A string of better-than-expected economic data in China and Japan boosted Asian markets, helping the MSCI Asia Pacific Index nearly 2% higher, while Japan's Nikkei ended flat.

In China, the government’s Purchasing Managers’ Index was 50.2 in June, little changed from 50.4 in May, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said.

In Japan, the Tankan index of manufacturers’ sentiment gained to minus 1 in June from minus 4 in March, the Bank of Japan said today in Tokyo. This was much better than expected.

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