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FTSE edges down; ECB bond hopes evaporate

MARKET BLOG: Britain’s FTSE 100 reverses as extent of Greek debt emerges and ECB crushes hopes of eurozone bond caps.

 
FTSE edges down; ECB bond hopes evaporate
  • US markets slip as Europe trades lower
  • ECB bond cap hopes depress Italian and Spanish yields
  • Amlin bounces back after wave of natural disasters
  • Lonmin slides on South African strike
  • Bovis Homes profits double in first half
  • FTSE flat; euro makes small gains

17.00: Britain’s markets slipped as investors digested a larger than expected debt burden in Greece and the European Central Bank (ECB) dismissed reports that it may cap eurozone bond yields.

The FTSE 100 gave up 0.48%, or 28 points, to 5,824 and the Mid-250 index dropped 0.47%, or 55 points, to 11,563.

Eurasian (ENRC.L) shed 12.7p, or 3.4%, to 357p as analysts at Credit Suisse cut their rating on the stock from ‘outperform’ to ‘netural’ as they expect earnings to slow over the next year.

Other mining stocks suffered on concerns about global growth: Evraz (EVRE.L) shed 11.3p, or 4.1%, to 259p; Xstrata (XTA.L) lost 31.8p, or 31.8%, to 907.5p; and Kazakhmys (KAZ.L) fell 23.5p, or 3.2%, to 717p.

Italian and Spanish 10-year bond yields reversed to near their opening levels, at 5.79% and 5.78% respectively, as the ECB rejected reports that it would cap the spread between yields on German bunds and peripheral eurozone bonds.

US markets slip as Europe trades lower

15.30: US markets opened slightly lower, tracking European sentiment, as markets mull over the latest negative developments from Greece.

The Dow Jones Industrial Average shed 0.06% to hit 13,267, the Standard & Poor's 500 index gave up 0.18% to 1,416, and the Nasdaq Composite index reversed 0.19% to 3,070.

Greece is due to repay €3.2 billion to the European Central Bank (ECB) today, and is expected to be able to make the payment having raised more than €4 billion with an issue of three-month treasury bills last week.

However, it was revealed over the weekend that the country is facing a €14 billion budget deficit for the next two years, and Wolfgang Schaeuble, German finance minister, said the country may not receive another aid package.

European stock markets also slipped: Germany’s DAX index gave up 0.12% to 7,1032, France's CAC 40 index shed 0.46% to 3,472, and the FTSEurofirst 300 index of top European shares fell 0.65% to 1,103.

ECB bond cap hopes depress Italian and Spanish yields

14.50: Reports that the European Central Bank (ECB) may cap the allowable spread between German bunds and bonds from peripheral eurozone countries is countering high Italian and Spanish 10-year bond yields.

German publication Der Spiegel reported on Sunday that the ECB could consider reining in the borrowing costs of indebted nations.

However, the bank has countered the reports, and an ECB spokesperson commented: ‘It is absolutely misleading to report on decisions which have not yet been taken and also on individual views which have not yet been discussed by the ECB's governing council.’

The yield on 10-year Spanish bonds has narrowed two basis points to 6.35%, and closed 21 basis points in earlier trade to hit 6.16%, its lowest level since the beginning of July. Yields rose above the 7% level in the latter half of July.

Italian 10-year bond yields also fell back to 5.69%, giving up two basis points from their opening price of 5.71%. 

Amlin bounces back after wave of natural disasters

11.20: Insurer Amlin (AML.L) added 13.7p, or 4%, to 394p as it bounced back to make a £184.5 million pre-tax profit in the first half of 2012, after posting a loss last year caused by a string of natural disasters.

Fewer large losses and an increased annual renewal rate of 4.2% helped profits as gross premiums rose 19.8% to £1.81 billion in the year to end of June.

The group suffered last year owing to exposure to the earthquake in New Zealand, flooding in Thailand, and the Japanese earthquake and tsunami.   

The stock has been a strong contributor in the Per petual Income & Growth trust, managed by Mark Barnett, and is a top holding in the Henderson UK Equity Income fund, overseen by Citywire AA-rated manager James Henderson

Lonmin slides on South African strike

10.00: Platinum miner Lonmin (LMI.L) continues to fall amid ongoing violence at its one of its major South African mines. The shares shed 20.5p, or 3.2%, to hit 619p in Monday morning trade.

Forty-four people have been killed in violent clashes between police and miners at the company’s Marikana mine in South Africa over the past week. 

The company issued an ultimatum to its 3,000 striking miners, who are asking for higher wages, to return to work today or face dismissal. However, it is feared the warning could increase tensions at the mine, and only 27% of workers have returned to the site.

The stoppage could mean the company misses its 2012 output targets, which would force it to overhaul its debts and raise cash on the equity market.   

Analysts at Deutsche Bank reduced their outlook on the stock form ‘hold’ to ‘sell’ on the continuing industrial dispute.

Lonmin is the world’s biggest supplier of platinum. Platinum prices have increased, hitting $1,478 an ounce, on concerns about supply of the precious metal from South Africa.

Bovis Homes profits double in first half

09.00: Bovis Homes (BVS.L) rose 12p, or 2.4%, to 505p on the FTSE 250 as its profits doubled in the first half of 2012.

The addition of sales outlets, from 68 to 82 sites, and improved house building figures, up to 944 from 801 in the same period in 2011, contributed to the rise in profits.

Profits before tax increased to £16.2 million in the first half of 2012, up from £8.1 million in the same period of 2011. The group’s pipeline also looks promising, with strong sales over the past seven weeks since the end of first-half results.

However, its land bank remains of concern to analysts. The group has 5.6 years of supply of owned land and 8.2 years supply of strategic land which could be sold to return cash to shareholders.

Despite the strong results Shore Capital reiterated its ‘sell’ recommendation on the stock, with a target price of 493p.

Jon Bell, analyst at Shore Capital, commented: ‘We focus on two factors that do not form a significant part of this morning’s statement. The first is that house prices are falling.

‘The second factor we focus on is the company’s return on capital… While the company’s capital returns are improving, they are doing so from a very low base and still lag those of its peers.’

FTSE flat, euro makes small gains

08.10: Britain’s FTSE 100 has started the week flat, as investors digest weekend press reports about Greece and the eurozone at the start of what is likely to be another quiet week of trading.

The FTSE 100 is hovering around the 5854 mark. The euro however is up, making gains of 0.2% at $1.236, while Spanish ten year government bond yields dropped to 6.3%, after Der Spiegel, the German weekly magazine, reported that the European Central Bank is considering capping the yields on peripheral countries’ government bonds.

Separate news reports centre on Greece, with German finance minister Wolfgang Schaeuble ruling out another aid programme for the country. ‘There are limits’, he reportedly said.

The euro may move little ahead of meetings in Europe this week where leaders will meet to hammer out ways to combat the region’s debt crisis.

In China, new-home prices surged in July from a month earlier in 49 of 70 cities tracked by the government, the National Bureau of Statistics said. That was the most since May last year and compared with 25 cities in June

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