The FTSE 100 struggled to find direction on Tuesday, swinging between gains and losses throughout the day on the back of development in the Eurozone and mixed economic data from the US.
Traders were showing caution as the EU summit on June 28-29th edges closer. European leaders are to discuss specific steps towards a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund, according to reports. "In the past, these summits have been met with a lot of optimism. However given their history of achieving nothing, we're now seeing low volatility as we wait for the announcement of productive talks but no solutions," said analyst Craig Erlam from Alpari.
Cyprus officially became the fifth Eurozone country to request a bailout yesterday, announcing last night that it would be applying for EU rescue funds for its banking sector and blaming the move on their exposure to Greece. According to a European official cited by Reuters, Cyprus could need up to €10bn, more than half the size of its economy.
In other news, Moody's downgraded no less than 28 Spanish banks by one to four notches due to the weakening of the Spanish government's creditworthiness. According to Bloomberg this afternoon, Moody's is ready to downgrade Spain's sovereign debt rating to junk status.
Spain tapped the sovereign debt market this morning for a total of €3.077bn in three- and six-month bills; however, yields advanced while demand for debt was weak compared with the previous auction. Italy also sold €3.9bn in two-year bonds today and saw yields hit a new high since December.
In the US, the S&P/Case-Shiller index of home prices fell at its slowest pace in over a year in April, while consumer confidence dropped to a five-month low.
Here in the UK, analysts said they were confident that more quantitative easing (QE) was on the way in July after Bank of England policy makers gave downbeat evidence to MPs this morning. Governor Mervyn King told the Treasury Select Committee that the outlook for the UK economy had worsened recently, driven by the crisis gripping the eurozone.
FTSE 100: Shire and Croda rise after broker upgrades
Shire leapt into the top spot, rebounding after a heavy sell-off the day before on the back of generic competition issues surrounding its ADHD drug, Adderall XR. The pharma giant was given a lift by Panmure Gordon, Berenberg and Societe Generale, who all upgraded their ratings on the stock.
Croda, the manufacturer of speciality and oleochemical products, was trading higher after JP Morgan Cazenove upgraded the stock from 'neutral' to 'overweight' this morning. "Croda's notable characteristic through the last downturn was one of resilience, and we see no evidence to suggest that this attraction is likely to wane," said JPMorgan analyst Martin Evans.
Oil and gas services provider Petrofac underwhelmed after reiterating its full-year net profit growth guidance of 15%. After an initial rise, gains were erased after Investec downgraded its rating on the stock from 'buy' to 'hold', highlighting the decline in the group's backlog.
Insurance group Resolution was also lower after Investec downgraded the stock by two notches from 'buy' to 'sell' and more than halved its target price. "We have significantly reduced our embedded value estimates and this highlights that there is likely to be less cash generation in the future," the broker said.
Royal Bank of Scotland was a heavy faller after technical issues at Natwest left customers without the access to their cash over the last few days. Sector peers Barclays and Lloyds were also in the red.
FTSE 250: Ocado drops 20% on third-quarter uncertainty
Online grocer Ocado plummeted despite some seemingly 'in-line' first-half results. However the group said that third-quarter trading was hard to forecast; it has already seen some disruption from the Jubilee events and there is "uncertainty as to the effect of the forthcoming Olympic Games". ??
Transport group Stagecoach jumped after revenues rose 8.4% in the year to the end of April and the total dividend was raised by 10%. Pre-tax profit however dipped slightly.
FTSE 100 - Risers
Shire Plc (SHP) 1,798.00p +3.16%
British Sky Broadcasting Group (BSY) 674.00p +2.74%
Authorities attempts to create a challenger to the main established lending groups - RBS, Lloyds, Barclays, HSBC - are in a state of disarrray after Moody´s six notch downgrade of Co-op last week. Simply put, creating a large new lender is far more difficult and risky than many appreciate. In any case, the fact remains that the sector´s main players continue to dominate the current account market, of which they still possess over 70 per cent. The lesson to be drawn from the [Tue 07:10]
Investor sentiment seems to have firmed a little in the first half of the session. That comes after a cautious start higher after the long weekend and as traders continued to debate about how much further the current push higher in equity markets has to go. [7 May '13]
Investors in London have come back from the long weekend with a slightly cautious attitude, as traders continue to debate whether the current push higher in equity markets will be sustained or not. [7 May '13]
"Royal Bank of Scotland is poised to send the clearest signal yet that it is ready for the government to begin reprivatising its majority stake," writes the Financial Times. The paper says that the bank is expected to announce plans for a share sale that could start as soon as next year. [3 May '13]
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