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Stock markets rally on upbeat US economic data

MARKET BLOG: Barclays shares steady despite huge fine. FTSE moves higher ahead of EU summit.

 
Stock markets rally on upbeat US economic data
  • Glencore and Xstrata shares drop after 'seismic development'
  • FTSE rises ahead of EU summit
  • US markets open higher amid upbeat economic data
  • UK mortgage approvals lower in 'subdued' market
  • Shire shares pull back after Monday's sell-off
  • Merkel rejects eurobonds
  • Barclays chief Diamond forgoes bonus as bank hit with huge fine

15.11: Some decent US economic data has helped markets shift up a gear this afternoon. Britain’s FTSE 100 is now up 71 points or 1.3% to 5517, with gains across European markets.

In the US the Dow has opened 0.6% higher and the S&P 500 is up 0.5%

Orders of durable goods, long-lasting manufactured products, in the US rose 1.1% in May, above economists’ expectations of a 0.4% rise. Economists though noted this figure was still weak.

And a separate US index showed sales of previously owned homes, or Pending Sales, rose 5.9% to 101.1; analysts had only expected an increase of 1%. The index, a forward-looking indicator from the National Association of Realtors based on contract signings but not closures, matched the highest level seen in the past two years.

Barclays shares steady despite huge fine

14.05: Another disgraceful episode for Britain’s banks: Barclays (BARC.L) chief executive Bob Diamond is forgoing his bonus after the bank was hit with the largest ever fine by the UK’s FSA alongside a multi-million pound fine from the US authorities.

The fine is for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), actions that the FSA described as ‘serious, widespread and extended over a number of years’.

The fine totals £290 million, of which £59.5 million was levied by the FSA.

Diamond said in a statement:

‘The events which gave rise to today's resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business. When we identified those issues, we took prompt action to fix them and co-operated extensively and proactively with the Authorities.

'Nothing is more important to me than having a strong culture at Barclays; I am sorry that some people acted in a manner not consistent with our culture and values. To reflect our collective responsibility as leaders, Chris Lucas, Jerry del Missier, Rich Ricci and I have voluntarily agreed with the Board to forgo any consideration for an annual bonus this year.'

Barclays shares haven’t moved significantly, remaining up 1.48% so far today at 195p

Merkel rejects eurobonds again

12.03: German chancellor Angela Merkel has again reiterated that ‘Eurobonds’ are not the answer to the eurozone crisis, rejecting proposals from other European leaders for jointly guaranteed debt.

Speaking in German parliament, she also said again that Germany doesn’t have ‘unlimited strength’ and if the nation is stretched it could would have unforeseeable consequences for Europe, in comments that again appear to be designed to play down hopes ahead of the EU summit that starts tomorrow.

Merkel instead stressed plans to boost competitiveness in the eurozone, incentives to boost youth employment, and moves towards a financial transaction tax.

Shire fights back on rising FTSE

11.36: Shire (SHP.L) shares are continuing to fight back after Monday’s sell-off. The pharmaceutical company is sitting at the top of the FTSE 100, with shares up 45p or 2.5% to 1,843p.

Shares in the pharmaceutical group closed down 10.2% on Monday after the news that US regulators have allowed Watson Pharmaceuticals in the US to launch a generic version of Shire's best-selling hyperactivity drug Adderall.

But a flurry of broker notes later and investors are realising the shares may have been oversold, as highlighted in a note from Société Générale yesterday, which pointed to the company’s high growth and cash generation.

The shares still have a way to go before even regaining the 1,966p price before Monday’s sell-off, let alone the 2,225p level at the start of the year.

Please visit our full site to view this interactive chart

UK housing market 'subdued'

09.33: The UK housing market remains 'subdued' as the number of mortgages approved by Britain's banks drops. That's what the latest numbers from the British Bankers' Association show. The number of mortgage approvals dropped to 62,063 in May from 66,613 in April. That's below the average of 69,141 in the six months prior to May.

Gross mortgage lending of £7.9 billion in May was also below the six-month average.

Personal deposits rose by 4.9% over the 12 months to May, which the BBA said was boosted by the start of the ISA tax year.

FTSE rises, but Glencore & Xstrata drop after 'seismic development'

08.06: The FTSE 100 and other European markets have opened higher, but Glencore and Xstrata shares are making losses.

  • FTSE 100 up 0.4% at 5,473
  • Eurofirst 300 up 0.4% at 990

Glencore and Xstrata shares are both showing small losses after the Qatari wealth fund raised concerns about their planned deal (see below). Xstrata is off 1.6% to 771p and Glencore is 1.5% lower to 298p, placing them among the biggest fallers on the blue-chip index in early trading.

The first bit of broker comment on the opposition to the deal is coming through. Dominic Okane at Liberum calls Qatar's statement a 'seismic development'. But he reckons the risk of a deal break remains low. Instead, a 'token increase' in the shares being offered to three Glencore shares for every one existing Xstrata share 'will be to the advantage of GLEN and XTA’s managements and shareholders'.

Myles Allsop of UBS, meanwhile, says there is now a 'material risk' that the deal could fail as 'both management teams adamant that the current terms are fair and had only been agreed after extensive negotiations'.

But Allsop adds that Glencore looks to be 'the most dynamic company in EU mining over next three years' and even if the merger with Xstrata fails, Glencore could form a merger with another company.

Qatar sovereign wealth fund wants better Xstrata/Glencore terms

07.55: Xstrata (XTA.L)'s second biggest shareholder, sovereign wealth fund Qatar Holdings, has said it wants better terms in the mining firm's planned merger with commodity trader Glencore (GLEN.L), meaning opposition to the deal is now strong enough to block it when investors vote on 12 July.

The Qatari fund wants 3.25 new Glencore shares for every one existing Xstrata share, it said in a statement last night, rather than the 2.8 shares currently being offered. This ‘would provide a more appropriate distribution of benefits of the merger whilst properly recognising the intrinsic stand-alone value of Xstrata’.

Glencore said in a statement to the market this morning that ‘we are considering that proposal and will make a further announcement when appropriate’.

The wealth fund's stance comes amid growing opposition to the deal. David Cumming, head of UK equities at Standard Life Investments has been among a string of high profile shareholders raising concerns. Cumming said the deal was 'in jeopardy' in a BBC interview, as investors would not accept planned lock-in payments for Xstrata management.

Meanwhile in broader markets, a repeat of yesterday's treading water is expected as investors hold their collective breath ahead of the EU summit that starts tomorrow.

A silver bullet to save the eurozone is not expected from the meeting, with German chancellor Angela Merkel yesterday saying that Europe would not share debt liability 'as long as I live,' poo-pooing hopes for a eurobond.

Overnight US stocks made small gains. See more here.

1 comment so far. Why not have your say?

In the Dark

Jun 28, 2012 at 13:22

The Germans are right in rejecting the eurobond solution, it will not stop over spending European Governments. The brave solution is a return to each country's own currency and responsible financial management. However, the musical chairs will continue for a while that is until there is no money left to pay the musician.

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