LONDON MARKET COMMENT: Royal Mail Down, RBS Up On UK Government Moves

Thu, 11th Jun 2015 09:37

LONDON (Alliance News) - London share prices are higher Thursday mid-morning, with the Greek debt situation remaining in the background and as shares in Royal Mail and Royal Bank of Scotland Group experience different fortunes following UK government announcements about its holdings in the two companies.

The FTSE 100 is trading up 0.4% at 6,854.46, while the FTSE 250 is up 0.6% at 18,131.78, after recovering the 18,000 mark Wednesday. The AIM All-Share is up 0.3% at 775.72.

In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt are up 0.8%.

Royal Mail leads FTSE 100 decliners, down 3.9% at 496.50 pence, after the UK government said it has raised GBP750 million by selling a further 15% stake in the postal operator for 550p a share, significantly more than it got per share when it first floated Royal Mail in a criticized initial public offering nearly two years ago.

Meanwhile, RBS is amongst the biggest blue-chip gainers, up 1.5%. UK Chancellor George Osborne used his Mansion House speech Wednesday evening to announce that he will begin selling the UK's 80% stake in RBS, after both the Bank of England and banking group Rothschild recommended that the time has come to initiate the lender's return to full private ownership.

Delivering his annual speech at Mansion House in London on Wednesday, Osborne said that kicking off the sale of the government's stake six years since completing the injection of GBP45.5 billion into the bank is the "right thing" to do.

While Osborne provided details about selling the RBS stake, his speech did not include explicit reference to the UK bank levy, which has been seen to have played a part in HSBC Holdings's decision to review whether to relocate its global headquarters from London. The Chancellor did say that making Britain the "best place" for the headquarters of European and global banks is in the national interest. The levy has been seen to disproportionately affect HSBC and fellow Asia-focused lender Standard Chartered as it is imposed on global, not just UK, balance sheets.

Standard Chartered is down 2.0%, giving back some the gains made Wednesday, while HSBC is up 0.1%.

Grocers J Sainsbury, up 2.8%, Tesco, up 2.4%, and Wm Morrison Supermarkets, up 1.8%, are again top raisers following Wednesday's gains, while oil-related stocks are also higher, as the Brent oil price trades higher at USD65.51.

BG Group is up 0.9%, BP is up 0.9%, and Royal Dutch Shell 'A' and 'B' share are up 0.5% and 0.6%, respectively. Soco International is up 3.6% and Nostrum Oil is up 4.1%.

Investor focus will turn later Thursday to the US, which is scheduled to release retail sales and jobless claims data at 1330 BST. Investors are searching for clues about when the US Federal Reserve will raise US interest rates. The next Federal Open Market Committee is scheduled for next week.

"Of particular interest will be signs that US consumption expenditure is beginning to benefit from lower oil prices and income gains underpinned by solid job growth, after a soft patch over the first quarter," says Lloyds Bank in a report.

According to FXStreet.com, US retails sales are expected to have risen by 1.1% in May, after a flat previous reading, while the US economy is expected to have added 277.000 jobs in the week ending June 5.

US futures point to a flat to lower open, with the DJIA and the Nasdaq 100 seen flat and the S&P 500 pointed down 0.1%.

Late Thursday, Bloomberg reported that German Chancellor Angela Merkel's government may be satisfied with Greece committing to at least one economic reform sought by creditors to open the door to bailout funds. While the story was denied soon after its initial circulation, some analysts say it does appear that there might be progress behind the scenes.

"Reports do suggest that the distance in the respective positions on the primary budget surplus has narrowed further, perhaps to just 0.15% of GDP," says Emily Nicol, economist at Daiwa Capital Markets. "We don't expect anything substantive to come out of the mooted head-to-head later today between [Greek Prime Minister Alexis] Tsipras and [European Commission President Jean-Claude] Juncker ."

"Nor do we buy the suggestions that Germany is willing to go very soft on Greece and countenance a disbursal of funds in return to minimal implementation of perhaps just one symbolic reform," writes Nicol. "Schaeuble and the Bundestag will need to see a great deal more than that."

"However, comments from the European Central Bank's [Benoit] Coeure do at least demonstrate the ECB?s openness to a significant restructuring of Greece?s official sector debt as long as the burden is not borne by the ECB itself and on condition of a meaningful reform effort from the Greeks," says Daiwa's Nicol.

By Daniel Ruiz; danielruiz@alliancenews.com