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Tuesday, 5 August - 4pm update
A softer oil price and some good news at long last from the banking sector helped paved the way for a spike in share prices today.
The price of a barrel of North Sea Brent crude retreated $2.20 to $118.48, paving the way for a useful rally among those companies likely to benefit from lower fuel costs. British Airways shook off recent weakness with a rise of 10¼p to 265½p ahead of its monthly trading update. Only last week, BA warned that its fuel bill this year would soar from £1 billion to £3 billion, or £8 million a day. Travel companies also responded enthusiastically to the weakened oil price with Thomas Cook up 20p at 220p, while TUI Travel grew 19.35p to 214.75p.
Better-than-expected results from Standard Chartered bank jacked up its shares 106p to 1529p as Barclays responded to the sale of its life assurance business to Swiss Re for £753 million with a rise of 31½p to 370¾p. Legal & General was also rewarded with a rise of 10.6p at 107.2p after reporting better-than-expected profits. Even the Prudential, which reported last week, advanced 32p to 579p after UBS cut its target for the life assurer from 700p to 650p while retaining a buy rating.
In the event, the FTSE 100 index spiked from opening falls to post a rise of 117.2 at 5437.4. Dealers said buyers had come looking for stock, which in many cases was not there to be had.
That was evident in the broader FTSE 250 which climbed 280.4 to 9067.8. But not all the news was positive. Investors chose to ignore an unexpected drop in manufacturing output and industrial output as well as a further decline in retail sales.
The Bank of England monetary policy committee will certainly have plenty to think about when it meets tomorrow. Most City folk reckon rates will be left unchanged.
In New York this afternoon the Dow opened 170.4 higher at 11,454.6 ahead of the Federal Reserve's meeting on interest rates tonight.
A falling oil price is not good news for everyone. Tullow Oil lost 33p to 734½p, BG Group 37p to 1049p, and Cairn Energy 50p to 2551p.
The market's performance was achieved without the support of the miners, which make up 12% of the value within the Footsie 100 index. Overnight the price of copper slumped to a six-month low with investors focusing on weakening demand and rising stockpiles. Other metals, such as platinum and zinc, are also now trading well below the record levels achieved earlier this year as demand slackens off.
Dealers say it is a reflection of the slowdown in the world economy and brings to an end the rapacious demand for commodities that has sent prices soaring and turned investment in them into a one-way bet during the past couple of years. Mining shares were marked lower following a sell-off on the Sydney stock market. Investors there are also worried about the weak Aussie dollar, which has lost more than 5% against the US dollar in the past couple of weeks.
Dealers say this may be good news for the likes of Rio Tinto, 21p lower at 4784p, BHP Billiton, down 14p at 1517p, and Xstrata, 14p off at 3229p, which have big Aussie cost bases, but is bad news for the likes of Anglo American, up 84p at 206p, with little exposure to Down Under. But any currency benefits they may accrue will be wiped out by the drop in commodity prices. Other losers among the miners included Eurasian Natural Resources, down 44p at 954p, and Ferrexpo, off 4¾p at 264p.
JPMorgan has cut Hammerson, up 42p at 1011p, from overweight to neutral but is sticking with its 1050p target because it believes the shares have run up in anticipation of strong first-half results on Thursday. This now looks priced in. JPM remains overweight on UK Reits within European property but currently prefers British Land, up 41p at 754½p, and Land Securities, 50p better at 1375p, to Hammerson, with both rated at overweight.
