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Banks were on the radar again today as the City braced itself for results from Bank of America and Citigroup following decent figures from Goldman Sachs and JPMorgan.
News of booming profits — and it appears bumper bonuses — on Wall Street has fuelled optimism that the global recession is drawing to a close and economic recovery is just around the corner.
Stock markets around the world have rallied this week, and the FTSE 100 index was up another 24.82 points to 4386.66 today following gains in New York and Asia.
However, there are very real concerns that banks' impressive earnings may be limited to the first and second quarters of the year and more grim news is on the way in the second half. Bad loans are the major worry.
Barclays was up 3.2p to 318p, Lloyds Banking Group was 0.13p higher at 70.08p and Royal Bank of Scotland gained 0.36p to 38.5p. HSBC put on 1.55p to 538.15p.
Citi raised its price target on Britvic to 360p from 350p following this week's profits upgrade by the firm. Plenty of sunshine at Wimbledon and the growing popularity of Twenty20 cricket have boosted sales of its drinks, which include Robinsons and Tango. There is also speculation in the City that Diageo is considering a bid. However, it did little for the shares today, down 1⁄2p to 314p.
Mothercare was another not helped by attention from the City. Altium raised its target to 473p from 402p after the High Street store reported a decent rise in sales despite the recession. In the UK, same-store sales were ahead 5% this spring while overall sales were up more than 9%. But the shares fell 31⁄2p to 5401⁄2p.
Analysts at Bank of America Merrill Lynch welcomed the “vision” chief executive Steve Morgan has for his housebuilder Redrow after two years of misery for the industry. Taking Redrow back to its roots of three- to five-bedroom family homes won praise from analyst Mark Hake and his colleagues at the US bank and the City expects the next round of land writedowns to be smaller than last year's.
Hake and co lowered estimates for this year but are reckoning on a much smaller loss in 2010, and the shares were up 3p to 1891⁄2p.
Nouriel Roubini, the notorious bear who called the meltdown of the past two years and earned the nickname Dr Doom, reckons the worst of the financial crisis is over.
“The freefall of the economy has stopped,” the New York professor said. “There is light at the end of the tunnel. And the light at the end of the tunnel for once is not the one of an incoming train.”
It seemed to do the job for Asian stock markets. The MSCI Asia-Pacific index has enjoyed its best week since May while Tokyo's Nikkei 225 Average closed up 51.16 at 9395.32 and the Hang Seng index in Hong Kong was 326.42 points higher at 18,688.29.
“Sentiment has been gaining momentum following positive economic and earnings news,” said Michiya Tomita, of Mitsubishi UFJ Asset Management in Hong Kong. “Most of the good news has been priced in. Investors will be looking for more catalysts in the next few weeks as companies report earnings.”
The MSCI Asia-Pacific index has risen this week as official reports showed economic growth accelerated in China and Singapore upgraded its forecast for economic growth. Mitsubishi Estate, Japan's biggest property developer by market value, was up more than 4% after Barclays gave the company its top overweight rating.
Macquarie Countrywide Trust jumped 16% in Sydney after selling a stake in US properties and LG Display, the world's number two liquid-crystal-display maker climbed 3% in Seoul as analysts upgraded the stock following better-than-expected profits.
“Improved investor risk appetite is being reflected in rising stocks,” said Juichi Wako of Nomura. “The market is starting to surmise that US earnings will not be as weak as forecast.”
It was a good session on Wall Street, where US stocks closed near highs for the year after a late rally. The Dow Jones Average ended up 95.61 points to 8711.82 and the S&P 500 finished nearly 1% higher at 940.74 while the Nasdaq gained 1.2% to 1885.03.
The rally came despite the possible bankruptcy of commercial lender CIT. Shares in CIT dived 75% to 41 cents after it conceded there was little chance of a government bailout.
