LONDON MARKET COMMENT: Standard Chartered Up Before Osborne Speech

Wed, 10th Jun 2015 09:36

LONDON (Alliance News) - UK shares prices are higher Wednesday morning, as negotiations on Greek debt remain in focus, while Standard Chartered is amongst the biggest gainers amid hopes that UK Chancellor George Osborne will set out plans to phase out the current GBP3.5 billion bank levy when he delivers his annual Mansion House speech on Wednesday evening.

The FTSE 100 is trading up 0.3% at 6,774.08, after four consecutive sessions ending in the red. The FTSE 250 is up 0.4% at 17,911.01, while the AIM All-Share is up 0.3% at 774.51.

In Europe, the CAC 40 in Paris and the DAX 30 in Frankfurt are up 0.2%.

The UK Treasury is expected to replace the bank levy with a new corporation tax surcharge, according to a report from The Times.

Unlike the bank levy, which is imposed on global balance sheets, the new tax would apply only to banks' assets in the UK. The bank levy has been a frustration for banks such as HSBC Holdings and Standard Chartered, both of which conduct the bulk of their business outside the UK. The report in The Times said that Barclays, Lloyds Banking Group and Royal Bank of Scotland Group could contribute a greater share under the new tax plans. Osborne's speech will also include further details of his plans for returning ownership of RBS to the private sector.

Standard Chartered's new chief executive, Bill Winters, has written in a letter to employees to mark his first day in the role, saying the bank's capital strength is his top priority.

"Capital strength is a competitive advantage, especially in tough economic times. We are reviewing all aspects of our capital strength as part of our broader business review," Winters wrote in a letter seen by Alliance News.

"We need to reinforce our foundations; streamline our business; strengthen our financial position; and re-orient the bank for better returns on our capital," the letter said.

Meanwhile, Deutsche Bank, Barclays Bank and the Royal Bank of Scotland Group were among a handful of European banks downgraded on Tuesday by Standard & Poor's, amid concern that state support in a crisis is now 'uncertain', the FT reported.

Analysts with the rating agency warned that it was unclear what support even systematically important financial institutions in the UK and Germany would receive, following the recent implementation of the European Union's Bank Recovery and Resolution Directive, the newspaper said.

S&P lowered the counterparty credit rating of Barclays Bank one notch to 'A-', with Deutsche Bank and RBS cut to 'BBB+' from 'A' and 'A-', respectively. RBS confirmed the downgrade in a statement.

Standard Chartered shares are trading up 3.7%. HSBC is down 0.5%, Lloyds is down 0.3%, Barclays is down 0.6% and RBS is down 0.7%.

Outside banks, J Sainsbury is up 5.1% even though it reported a drop in retail sales in the first quarter of its financial year as it continues to be hit by food-price deflation amid a highly competitive UK grocery market. However, Chief Executive Mike Coupe said that he is "encouraged by some of the early trends that we are seeing in our key trading and operational metrics", as volume and transactions continue to grow.

J Sainbury's peers Tesco and Wm Morrison Supermarkets are also trading higher, up 4.8% and 3.9%, respectively.

Mining stocks are higher, recovering some of their losses from the past five days. Anglo American is up 2.1%, BHP Billiton is up 2.0%, and Rio Tinto is up 1.6%.

Weir Group is the worst performer in the FTSE 100, down 2.7%, after saying it expects its full-year revenue, margins and profit to be weighted more towards the second half than in previous years. Chief Executive Keith Cochrane said the second quarter is proving to be "very challenging" for its oil and gas division, with the US rig count continuing to decline, though at a slower rate over the past month.

In the FTSE 250, FirstGroup is up 5.1%, after it reported higher profits for its last financial year as its improvement plan delivered higher margins in its US First Student and UK bus operations, while it expects its plan to drive further improvements in most businesses in the current year.

On the economic front, UK industrial production grew at a slower pace in April, data from the Office for National Statistics showed. Industrial output increased 0.4% month-on-month in April, weaker than March's 0.6% growth, but better than the expected growth of 0.1%. Meanwhile, manufacturing output dropped unexpectedly by 0.4%, offsetting a 0.4% rise seen in March. Economists had forecast a 0.1% rise.

On a yearly basis, industrial output growth edged up to 1.2% in April from 1.1% in March, while manufacturing growth eased notably to 0.2% from 1.2%. Economists had forecast 0.6% rise in industrial production and 0.4% increase in manufacturing output.

European officials appeared unconvinced Tuesday by Greece's new set of reform proposals, as Greek Prime Minister Alexis Tsipras is expected to meet Wednesday German Chancellor Angela Merkel and French President Francois Hollande, on the margins of a summit in Brussels of European Union, Latin American and Caribbean leaders.

Eurogroup President Dijsselbloem said he is not sure that a decisive meeting will be held Wednesday, while it also is unclear whether European Commission President Jean-Claude Juncker will be willing to take part in the meeting as he had indicated at the weekend that he first wanted to see alternative Greek proposals.

"Without Juncker there to broker some kind of compromise any meeting between Tsipras, Merkel and Hollande is doubtful to yield any progress," says Spreadex analyst Connor Campbell. "Both sides are operating on the firmly entrenched opinion that their own proposal is the most reasonable, and following the reported slap in the face of yesterday?s Greek proposal, this is unlikely to change."

"It would almost make more sense for each side to start discussing an amicable divorce than a hastily applied solution to keep Greece in the euro," believes Campbell.

US futures point to a higher opening with the DJIA, the S&P 500 and the Nasdaq 100, all pointed up 0.2%.

Still in the economic calendar Wednesday, in the US, EIA Crude Oil stocks are due at 1530 BST.

By Daniel Ruiz; danielruiz@alliancenews.com