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Market Blog: FTSE ends volatile week higher

US president Barack Obama calls for decisive action in Europe, while Spain is expected to request bank aid on Saturday.

Market Blog: FTSE ends volatile week higher

16.41: It’s been a choppy day to end a giddy week on markets. Barack Obama’s comments (see 15.45 post below) helped erase some of the market losses, while expectations of an imminent banking bailout in Spain helped the Spanish Ibex 35 index higher.

Lingering disappointment over comments made by US Federal Reserve chairman Ben Bernanke on Thursday kept markets lower most of the day though.

The FTSE 100 ended the day off 12 points or 0.23% to hit 5,435, but that represents a 3% gain on the shortened week.

The US Dow and S&P 500 were just higher at 12,481 and 1,316 respectively.

See our Week Ahead preview for what's to come over the next week.

15.45: Global markets have turned higher as US president Barack Obama called for more US action to boost the economy and urged decisive measures from European leaders.

Obama said US congress should reconsider his proposals to strengthen the labour market, while he specified the need to fix the European banking system.

‘The challenges they face are solvable right now; their focus has to be strengthening their banking system… making a series of decisive actions.’

‘I think European leaders are in discussions about that and they are moving in the right direction.’

In the US:

'Given the signs of weakness in the world economy… it is critical that we take the actions we can now.’

‘The most important thing we can do, is make sure we continue to have a strong robust economy.’

He also warned that too much austerity in Europe can be damaging to growth.

FTSE 100 just lower at 5443, Eurofirst 300 flat, US Dow 0.17% higher.

15.06: Plenty for investors to get excited about in the coming week, with events over the weekend (Spain bank aid news, Chinese economic data) loaded with potential for more volatility on Monday.

See our preview of the week ahead for more details.

14.50: US markets have opened down, following the poor show in Europe. Spain remains an outlier, with the Ibex 35 up 0.7% amid reports that the country could request a bailout for its banks on Saturday.

Reuters first reported the news, while the Financial Times has backed it up with its own sources. But there was the usual euro-caution. According to the FT:

'The size and the structure of the bailout is not expected to be decided right away. “You don’t sign on the dotted line by next week,” said one person briefed on the preparations.'

And there have been several comments from European officials that they have no knowledge of the plans and were waiting for an International Monetary Fund report on Spain's banks, due on Monday.

12.01: Amid reports (see post below at 11.00) that Spain could request a bank rescue this weekend, analyst Ralph Solveen of Commerzbank questions whether this would mean, under investor pressure, the country would then have to go one step further and request a bigger, more general bailout.

'Should Spain actually request aid for its banks, one of the biggest questions in the coming weeks will be whether Spain will also have to make a general request for support.'

'After all, Spain would be admitting, by such a request for support to banks, that it can no longer finance itself for all purposes on the market. We believe it is possible at least that investors will more and more doubt whether Spain can finance its deficit and the redemption of expiring governments bonds via the market.'

'Consequently, Spain could be forced to request a general rescue package soon.'

- Chris Marshall

11.45: Any relief from the equity market sell-off was short-lived (see below at 11.00) in volatile markets. Spain's Ibex 35 is back in the red, down nearly 0.5%, while the FTSE languishes below 5,400.

11.00: Stock markets have clawed back some of their earlier losses on the back of a Reuters report that Spain will request bank aid this weekend – ahead of the results of a report on the country’s banking system from the International Monetary Fund. 

Reuters reported:

‘Two senior EU officials said finance ministers of the 17-nation single currency area would hold a conference call on Saturday to discuss a Spanish request for an aid package, although no figure had yet been set.’

Though in a later report, the newswire said:

‘A Spanish government spokeswoman said on Friday she was not aware of any pending announcement on a bank rescue after Reuters cited European Union and German sources saying Spain is expected to make a request for aid over the weekend.

‘The spokeswoman referred to Prime Minister Mariano Rajoy's comments on Thursday that he would wait to see the results of independent audits of the country's banking system before talking with Europe over the best course of action to recapitalise the banking system.'

Spain’s Ibex 35, nursing big losses earlier in the session, is now up 0.2%. Britain’s FTSE 100 is bouncing around at 5,409, still in the red, but off its 5,381 day low.

Traders said that in the absence of any other major positive news, the Spanish bank aid report – which has been splashed across the global financial press – was likely behind the shifting sentiment.

– Chris Marshall

09.44: Falling oil prices (see below, at 09.27) – while not necessarily helping consumers at the petrol pump – are aiding businesses.

The producer price index (PPI), or factory gate prices, eased in May (though less than expected) according to data released by the Office for National Statistics today. Notably, the total input price index fell 2.5%, the largest monthly fall since December 2008 (shown in the ONS chart below).

‘The recent marked retreat in oil prices is easing the pressure on manufacturers’ margins and reducing pressure on them to raise their prices,’ commented Howard Archer of IHS Global Insight.

‘In fact, the fall in input prices gives manufacturers’ increased scope to trim prices to win business.’

– Chris Marshall

09.27: The crude oil price has dropped sharply. Fears over the state of the world economy were exacerbated by China’s decision to cut interest rates yesterday, which has raised fears about the strength of the Chinese economy. Vaguenss from the US Fed’s Ben Bernanke about when and if US monetary easing would be forthcoming has also dented sentiment.

US dollar strength is also affecting the oil price, which today hit a low of $97.2.

Please visit our full site to view this interactive chart

– Chris Marshall

08.50: Analysts at French bank BNP Paribas say Spain is likely to request external support for its banks within the next two to three months, but most likely after the release of the review of its banks by the International Monetary Fund, which will be finalised on 18 June.  

The chart shows how close Spain is to reaching the sort of 10 year bond yield levels where the country – whose president Mariano Rajoy this week admitted Spain might need European support – might officially request a line of credit.

News reports this morning suggest Spain could act even sooner though, with Reuters reporting that the country could make a request for help this weekend.

Last night Fitch cut Spain's credit rating by three notches to BBB.

Spain's Ibex 35 stock exchange is down 1.7% today, while 10 year bond yields spiked this morning after the Fitch downgrade, but dropped back slightly to 6.141%.

- Chris Marshall

8.44: Shares in Lamprell (LAM.L) are on the slide again after the oil and gas contractor issues a second profits warning over the impact of rising costs on its construction projects. Although the company is sticking with the $1.1 billion revenue forecast it made last month, it says net margins will fall from 3.5% to 2.5%. The shares have plunged a third to 72.4p.   

Investors, who included Citywire Money columnist David Kempton, are still unhappy over the way two senior managers were allowed to sell shares three weeks before the first warning on 17 May. The shares have lost three quarters of their value this year.

- Gavin Lumsden

8.25: Barclays (BARC.L) is down 4p, or 2.1%, to 188.7p after the Financial Times reported that the bank's disposal programme is way behind schedule as a result of the eurozone crisis.

The paper says that 16 months after chief executive Bob Diamond promised to boost profits by disposing of weak businesses, it has only completed a third of the planned disposals. As a result no analysts are forecasting Barclays will hit his target of a 13% return on equity by 2014.

- Gavin Lumsden

8.10: The FTSE 100 has fallen 34 points or 0.6% to 5,413.

Plus Markets (PMK.L) has put out a detailed statement rebutting what it says are misleading media reports about the sale of its junior stock exchange to Icap (IAP.L). It says the disposal is not for just £1 as Icap will take on liabilities from the business. It insists that shareholders, including Amari Dhari Investments, which owns 18% of Plus, were kept informed.

The shares, which plunged 25% yesterday after Plus said a failure to complete the Icap deal would see it lose its exchange licence, are holding steady at 0.3p.

7.45: European markets look set to fall this morning after Fitch slashed Spain's credit rating and Germany reported a sharp fall in imports for April.

London & Capital Asset Management are forecasting the FTSE 100 will open 25 points lower at 5,422 with the German Dax down 34 at 6,110 and the French Cac off 30 at 3,041.

Ratings agency Fitch increased the pressure on Spain to seek a bailout as it cut its rating on its government debt to BBB, just two notches short of 'junk', and placed the country on 'negative outlook' as a result of contagion from Greece's economic crisis.

News that Germany's seasonally adjusted imports dropped 4.8% in April, their biggest fall in two years, has also hit sentiment.

This followed overnight falls in Asia and Wall Street after US Federal Reserve chairman Ben Bernanke dashed hopes for further early monetary stimulus.

- Gavin Lumsden

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