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Global markets shift higher on US optimism
by Chris Marshall on Jul 18, 2012 at 16:29
16.28: US markets have turned higher, erasing early losses amid a flurry of corporate earnings releases, as US Federal Reserve chairman Ben Bernanke answers questions before the House Financial Services Panel.
Bernanke, making his second appearance in front of politicians in two days, has repeated his warnings about the impending ‘fiscal cliff’ in the US.
He said he doesn’t expect a double-dip recession in the US, but moderate growth
The recovery has been slower than he would have liked, but there has been progress in creating jobs and recovering from recession.
Amid the clamour for more stimulus from the Fed – or ‘QE3’ – Bernanke said monetary policy is 'not a panacea' and other branches of government could also act to help the economy.
Of major US corporates reporting, Bank of America and aircraft parts maker Honeywell beat analysts’ expectations, but semiconductor maker Intel dropped its outlook for full-year revenue growth.
There were signs of a continued recovery in the US housing market. Housing starts beat expectations to rise 6.9% in June, after a 4.8% drop in May. Analysts are calling the end of the US housing market bust with increasing confidence.
Meanwhile the International Monetary Fund had repeated its message that the eurozone crisis has reached a ‘critical stage’ and policymakers must take immediate action.
Britain’s FTSE 100 has extended its gains, up 0.9% at 5,679, with similar moves higher across Europe.
Investors attracted to sold-off G4S shares12.11: Can it get any worse for G4S? Evidently some investors think not. Bargain hunters are nibbling today, pushing the shares up to the top of the FTSE 100, with a rise of 2.9% to 247p.
The firm’s inability to provide promised staffing for the Olympics saw shares drop nearly 18% since the scandal struck the headlines last week. But they have been rising since the end of yesterday’s parliamentary hearing, where MPs quizzed boss Nick Buckles (pictured above). Yesterday Buckles also received the support of G4S’s second largest shareholder, Invesco fund manager Neil Woodford.
UK employment rises
09.36: A string of news on the UK economy, including the usual mixed bag of numbers on the labour market:
- Minutes from the Bank of England's MPC meeting at the start of July, where they raised QE by £50 billion, show two members voted against extending the scheme
- No one on the nine man committee voted for a change to the 0.5% base interest rate
- UK unemployment fell by 65,000 from March to May; the unemployment rate is now 8.1%
- Total pay (including bonuses) rose by 1.5% on a year earlier
- In June 1.6 million people claimed Jobseeker’s Allowance (JSA), up 6,100 from May.
- Earlier the government announced the launch of a scheme to guarantee £50 billion of investment in infrastructure and exports
Ryanair bid 'not credible' say Aer Lingus board
08:54: Not only is Ryanair (RYA.L)’s takeover bid for Aer Lingus not ‘credible’, the board of the Irish flag carrier has said, but the existing 29% stake held by Michael O ‘Leary’s budget airline is anti-competitive.
That was Aer Lingus’s message in a robust rebuttal of yesterday’s detailed €694 million offer from Ryanair.
Again recommending that its shareholders hold firm, Aer Lingus stated: ‘Ryanair's 2006 offer was prohibited by the European Commission on competition grounds, and your Board believes that the reasons for prohibition are now even stronger than before: the number of routes that Ryanair would monopolise has sharply increased.
‘In addition, the UK Competition Commission is continuing to investigate the anti-competitive effects of Ryanair's 29.82% stake in Aer Lingus, despite Ryanair's repeated and ongoing attempts to stop both this investigation and the previous Office of Fair Trading investigation. Your Board has received legal advice that the UK Competition Commission is likely to require Ryanair to sell down its current stake.’
In a 182-page offer document yesterday, Ryanair attempted to entice Aer Lingus investors with a €1.30-per-share offer, a premium of 38.3%. It said 'Aer Lingus has failed to deliver value for shareholders'.
Washout British summer hits RSA shares
08.17: Britain’s washout summer yesterday brought some rare good news for the economy: retailers started their summer sales early, bringing down inflation for squeezed consumers.
Today, though, another company comes forward, this time insurer RSA (RSA.L), to reveal the extent of the water damage it has suffered as a result of record-breaking rains.
RSA’s shares are down 2.8% to 105.2p, making it the biggest faller on the FTSE 100, after telling the market that it expects to make a loss of £50 million in June and July. It stated:
‘Following the wettest June on record in the UK, RSA today announces that the net loss across the group’s UK Household, Motor and Commercial Property portfolios from last month’s adverse weather is estimated to be around £40 million. Current expectations are that the impact of the continued rainfall experienced to date in July will be around £10 million.
‘In addition, the net loss to the Group in relation to the two earthquakes in the Emilia-Romagna region of Italy in May is estimated to be around £35 million.’
Analysts have been attempting to work out how great a bill insurers face from the floods. Deloitte's James Rakow said on Monday that the cost of claims arising from the floods of the past few weeks 'will be the greatest since the 2007 flood losses', which pushed them into losses for their home insurance accounts. 'The full costs of the claims from this summer’s floods have yet to be assessed but previous experience has shown that widescale flooding can have a significant impact on the level of claims borne by insurance companies,' Rakow said.
RSA added that it expected its combined operating ratio for the full year to be better than 96%.
FTSE creeps higher after Bernanke's mixed messages
08.06: Britain's FTSE 100 and European markets have started the day slightly higher, following gains in the US overnight.
The FTSE is up 0.3% to 5,645, with similar gains on other European markets.
Brent crude oil is 0.3% lower at $103 per barrel, dragged down by the economic outlook, while the euro is flat at $1.2288Yesterday, after early losses, US markets closed higher. Federal Reserve chairman Ben Bernanke provided little assurance that more quantitative easing measures would be forthcoming in a statement before a Senate committee. But shares recovered after the Fed chief said that the central bank would consider a range of measures to further stimulate growth if it became clear unemployment was not falling or if deflation risks mounted.
The Dow Jones industrial average rose 78 points, or 0.62%, at 12,806. The Standard & Poor's 500 Index added 10 points, or 0.74%, at 1,364. The Nasdaq Composite Index gained 13 points, or 0.45%, at 2,910.
Asian shares dropped overnight as Chinese Premier Wen Jiabao warned of a ‘severe’ jobs outlook.
Separate data showed that property prices in many of China’s major cities rose for the first time in a year.
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