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Oil price passes $110 as investors take on more risk
MARKET BLOG: Standard Chartered shares plunge; Intercontinental Hotels moves the other way on plans to return $1bn to investors.
- Equity markets, euro and oil price move higher
- Analysts downgrade plunging Standard Chartered shares on Iran money laundering claims
- Legal & General posts strong results, but concerning outlook
- More downbeat economic figures ahead of key Bank of England report
- Intercontinental Hotels pleases investors with $1 billion payout pledge
15.35: Standard Chartered shares are off their earlier low of 1,092p, but are still down 249p or 17% at 1,220p as investors contemplate the bank’s future after the allegations about laundering money to Iran.
Charles Stanley has joined other brokers (see post below timed 09:04) and downgraded the bank’s shares, from ‘accumulate’ to ‘hold’. Analyst Nic Clarke said: ‘Despite the robust long-term performance of the group, given the level of uncertainty surrounding potential fines and more importantly other sanctions (the possibility of losing its NY banking license) we cannot continue to support a positive rating on the stock.’
Fund managers and private investors have also been considering whether the shares will continue their sharp decline.
Citywire columnist ‘Dumb Investor’ has taken a brazen punt on the shares, hoping they’ll pull back. Full story here.
One French fund manager told Citywire’s Atholl Simpson that he had got lucky and sold out of the shares just before the news broke. He won’t be buying back in though. Full story here.
Meanwhile, Caelainn Barr has the detail on the latest scandal to rock the banking sector here.
Oil price passes $110 as investors take on more risk13.35: The Brent crude oil price has climbed above $110 for the first time since mid-May as investors prove willing to take on more risk and amid concerns about supply.
‘The oil market remains susceptible to Middle East tensions, while an Atlantic tropical storm is posing a threat to Mexico’s crude production,’ noted analysts at JBC Energy.
Thinly traded summer assets in general have been rallying since Friday morning amid hopes of action from the authorities to both fix the eurozone crisis and stimulate the US economy.
Having fallen as low as 5,659 on Thursday – when the European Central Bank’s Mario Draghi failed to offer an immediate fix for the high borrowing costs being suffered by Spain and Italy – Britain's FTSE 100 is sitting above 5,800 at 5,816. The UK’s benchmark index has waxed and waned this year in line with the perceived fate of the eurozone, but has been on a tear since 1 June, when it hit a 2012 low of 5,260.
The long-suffering euro has also been climbing since Thursday’s low, a sign that traders are ‘risk-on’. The single currency is up 0.3% today at $1.243 – still well below January’s $1.29 level.
Kathleen Brooks of Forex.com commented: ‘As Olympic spirit grips the world… the bulls are choosing to believe that the good news can be sustained, which is weighing on the safe havens and boosting the euro, commodity currencies, stocks and commodities.’
Intercontinental Hotels to return $1bn to investors
10.40: Investors are cheering the promise of a $1 billion payout from Intercontinental Hotels Group (IHG.L) this morning, pushing the shares to the top of the FTSE 100.
Alongside a decent set of half year numbers, showing a 6% rise in operating profits, the Holiday Inn and Crowne Plaza owner announced a $500 million special dividend to be paid in the fourth quarter of this year, alongside a $500 million share buyback programme.
The interim dividend was also hiked by 31% to 21 cents.
‘While the global economic environment remains uncertain, IHG continues to trade well and we are confident that our strategy will deliver high quality growth into the future,’ commented Richard Solomons, the group’s chief executive.
Shares are up 115p or 7% to £17.37, on a falling FTSE 100. Both Panmure and Investec raised their target price for the shares on today's news.
Jubilee break dents UK manufacturing
10.01: ‘A dive, not a belly flop’, said Alan Clarke of Scotiabank of figures on UK industrial production, just published. The numbers were not as terrible as expected, but feeble nonetheless, as the two-day Jubilee holiday suppressed economic activity.
According to the Office for National Statistics, production fell by 2.5% between May 2012 and June 2012, compared with the 3.4% decline predicted by analysts. Manufacturing fell by 2.9%, better than the 4.1% fall that was anticipated.
A separate report on the UK economy published this morning showed that retail sales values rose just 0.1% in July, from July 2011. The British Retail Consortium and KPMG, which compile the survey together, warned that August sales would be similarly weak as shoppers avoid central London due to the Olympics.
Tomorrow the Bank of England publishes its closely scrutinised quarterly inflation report, in which it is expected to cut back its forecasts for economic growth.
Analysts downgrade Standard Chartered09.04: Analysts have cut their investment recommendations for Standard Chartered (STAN.L) following allegations that the bank has secretly laundered money to Iran.
It is a ‘hammer blow to the investment case’, says Gary Greenwood of Shore Capital, who is reviewing his 'buy' recommendation, pointing to the ‘severe’ fine the company could face and the less likely – but potentially more worrying – risk that Standard Chartered could lose its US banking licence. That said, Greenwood added that the company, formerly a favourite with many investors for its emerging markets exposure, retained attractive features, including a strong balance sheet.
Nomura’s Chintan Joshi, commenting before Standard Chartered released a statement this morning, also downgraded the shares, which had been his preferred stock in the sector and would still remain so ‘on the basis of fundamental equity analysis’.
Joshi wrote in a note: 'In the face of these risks, we cannot defend our Buy rating despite fundamental preference and as such downgrade to Neutral. In the near term we see downside risks from negative headlines on the topic.'
Other analysts were most concerned about the reputational risk to the bank. ‘It is the reputational hit and management distraction that results from these regulatory allegations that is likely to prove most costly,’ says Michael Symonds of Daiwa.
Michael Helsby of Bank of America Merrill Lynch cut back his recommendation on the shares to ‘underperform’ from ‘buy’. ‘While the underlying fundamentals and earnings growth of the group's businesses remain intact, we believe the allegations levelled at StanChart by the NY DFS will weigh on the share price for the near term’,’ noted Helsby and colleagues.
Oriel Securities downgraded the bank from ‘hold’ to ‘reduce’, suggesting that the shares would underperform until the US investigation was concluded. The shares are currently down 15.7% at £12.38.
Legal & General posts strong results, but concerning outlook
08.38: Legal & General (LGEN.L), the insurer and asset manager, has reported a forecast-beating 5% rise in operating profits, and will increase its interim dividend by 18% to 1.96p per share.
The company, however, warned about the poor state of the environment in which it is operating, suggesting that ‘the industry will continue to face challenging economic headwinds’ and it continues to ‘plan accordingly’.
‘The UK economy is likely to perform poorly and we expect further macro shocks across the world, particularly in the eurozone,’ the company stated, perhaps explaining this morning's 2.1p or 1.6% drop in L&G's share price to 129p.
It remains 'confident' in the face of these threats, however, the company added. Eamonn Flanagan of Shore Capital said that these bearish warnings would likely grab some headlines 'however, to us, this shouldn’t deflect from Legals’ positioning and resilience in the face of these threats.'
Flanagan reiterated his 'buy' recommendation on the shares.
Standard Chartered shares plunge after Iran claims
08.05: Standard Chartered (STAN.L) shares have plunged 15% after allegations that the bank hid $250 billion of transactions with Iran over the space of a decade.
The bank has this morning hit back at the claims, which were made yesterday evening by New York State financial watchdog the Department of Financial Services (DFS). Standard Chartered said it had made its dealings public within its annual accounts.
'The group strongly rejects the position or the portrayal of facts as set out in the order issued by the DFS,' it said in a statement.
'The group does not believe the order issued by the DFS presents a full and accurate picture of the facts.'
Shares are down 220 at 1250p, the biggest faller on the FTSE 100 which is itself slightly lower at 5803.
More about this:
Look up the shares
- Standard Chartered PLC (STAN.L)
- Legal & General Group PLC (LGEN.L)
- InterContinental Hotels Group PLC (IHG.L)
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