ADVFN Morning London Market Report: Friday 17 March 2023

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London open: Stocks rise as US banks step in to help First Republic


London stocks rose in early trade on Friday, tracking gains on Wall Street after a group of US banks stepped in to help First Republic Bank.

At 0820 GMT, the FTSE 100 was up 0.8% at 7,470.68.

On Thursday, 11 US lenders deposited $30bn with First Republic Bank in a show of support.

The banks involved are Bank of AmericaCitigroupJPMorgan ChaseWells FargoGoldman SachsMorgan StanleyBNY MellonPNC BankState StreetTruist and US Bank.

In a statement, they said: “The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most.

“Smaller- and medium-sized banks support their local customers and businesses, create millions of jobs and help uplift communities. America’s larger banks stand united with all banks to support our economy and all of those around us.”

Richard Hunter, head of markets at Interactive Investor, said: “Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion.

“In the US, the initial signs were not positive as the main indices swung into the red, with the Dow Jones falling over 300 points, largely in reaction to the European Central Bank’s decision to press ahead with a further interest rate rise of 0.5%. However, sentiment turned after news emerged that a consortium of banks announced that it would be depositing $30 billion with First Republic Bank in an effort to shore up its capital position.

“The sentiment swing came despite reports that US banks had been seeking record amounts of emergency liquidity from the central bank in recent days which, while not alarming of itself, was a sign that the waves of caution had not yet subsided. Even so, the generally swift and decisive actions which have been taken have removed some of the sting from market volatility.”

In equity markets, miners were the standout gainers, with Anglo AmericanGlencoreAntofagasta and Rio Tinto all up as metals prices rose.

Bodycote surged after reporting a jump in full-year profit and revenue and lifting its dividend, as it said permanent price increases had fully recovered labour and general cost inflation.

Frasers Group advanced after the Financial Reporting Council said it had closed its investigation into Grant Thornton’s audit of Sports Direct’s financial statements for the year to 24 April 2016.

Diploma was also in the black after it raised around £235m in a placing to help fund the acquisition of US-based Tennessee Industrial Electronics.

BT Group fell after Ofcom said it will need another two months to undertake further analysis of Openreach’s ‘Equinox 2’ discount scheme.

In broker note action, GSK was boosted by an upgrade to ‘buy’ from ‘hold’ at Deutsche Bank, but Sage Group was a little weaker after a downgrade to ‘neutral’ at Exane.


Top 10 FTSE 100 Risers

Sponsored by Plus500
# Name Change Pct Change Cur Price
1 Glencore Plc +3.85% +16.30 439.50
2 Anglo American Plc +3.27% +81.00 2,560.00
3 Bp Plc +3.22% +15.55 498.00
4 Flutter Entertainment Plc +3.11% +430.00 14,260.00
5 Antofagasta Plc +2.99% +43.50 1,497.50
6 Shell Plc +2.94% +65.00 2,274.00
7 Bhp Group Limited +2.63% +62.00 2,417.00
8 Ocado Group Plc +2.53% +11.00 446.60
9 Rio Tinto Plc +2.29% +121.00 5,402.00
10 Fresnillo Plc +2.26% +15.80 713.60


Top 10 FTSE 100 Fallers

Sponsored by Plus500
# Name Change Pct Change Cur Price
1 Bt Group Plc -2.32% -3.40 143.25
2 Rentokil Initial Plc -1.81% -10.00 543.60
3 Admiral Group Plc -1.69% -33.00 1,921.50
4 Schroders Plc -1.06% -4.80 446.10
5 Prudential Plc -0.95% -10.00 1,039.50
6 United Utilities Group Plc -0.66% -7.00 1,058.00
7 Severn Trent Plc -0.63% -18.00 2,832.00
8 Hikma Pharmaceuticals Plc -0.57% -10.00 1,731.50
9 Melrose Industries Plc -0.56% -0.85 151.30
10 Hargreaves Lansdown Plc -0.56% -4.40 785.40


US close: Stocks pop as banks swoop to save First Republic

Wall Street ended on a high note on Thursday, as major banks deposited a combined $30bn with troubled lender First Republic Bank.

The Dow Jones Industrial Average closed up 1.17% at 32,246.55, while the S&P 500 rose by 1.76% to reach 3,960.28.

The tech-heavy Nasdaq Composite saw the biggest gains of the day, closing up 2.48% at 11,717.28.

The deposit of $30 billion into First Republic Bank was confirmed by a group of 11 banks, including Bank of AmericaCitigroupJPMorgan Chase, and Wells Fargo.

Each of them confirmed they would be depositing $5bn each into the troubled lender.

The move came on the heels of the recent collapse of Silicon Valley Bank and Silvergate Bank, which heightened concerns of a potential banking liquidity crisis.

Credit Suisse‘s liquidity had been called into question this week, causing consternation on the other side of the Atlantic as well.

However, sentiment surrounding Credit Suisse improved overnight on Wednesday, as the Swiss National Bank announced that it would be providing it with a CHF 50bn loan, among other measures.

“In a week that has seen traders struggle with the concept of whether to buy the dollar for its haven role, or sell it on the premise of a more dovish Fed, today has highlighted the potential for a similarly hawkish take from Powell next Wednesday,” said IG senior market analyst Joshua Mahony.

“Markets are currently pricing in a 79% chance that the Fed will hike by 25-basis points, with pre-meeting volatility likely to further impact those expectations.”

Mahony noted that what the week had proven was how detrimental higher interest rates could be to a sector that many believed was desperate for such a move.

“The pressure is on to cut rates as soon as possible, but the task for now is to stabilise things to allow for further tightening in a bid to drive down inflation first.”

Currency markets were mixed, with the dollar last trading flat on the pound at £0.8258, as it slipped 0.03% against the euro to €0.9422, and it weakened 0.27% on the yen to change hands at JPY 133.38.

Tightness persists in labour market, housebuilding rises

In economic news, the latest data from the US Department of Labor shows that the tightness in the job market persisted last week.

Initial unemployment claims fell by 20,000 to 192,000 for the week ended 11 March.

Meanwhile, the four-week moving average for claims, which smooths out week-to-week variations, fell by 750 to 196,500.

However, secondary jobless claims, which provide a better picture of hiring trends, dropped by 29,000 to 1.684 million for the week ended 4 March.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, attributed the declines in claims to the reversal of the impact from adverse weather in California and the Midwest.

“The trend probably is still below 200,000, but we expect it to rise sharply in the spring as the wave of layoff announcements translates into actual layoffs and claims for unemployment benefits,” he said.

“For now, though, the claims data make it clear that the slowdown in payroll growth over the past year-and-a-half is mostly a story about slowing gross hiring, not rising firings.”

Elsewhere, housebuilding activity in the US saw an uptick last month, but the details of the data revealed a less impressive picture.

Housing starts rose by 9.8% in February to reach an annual rate of 1.45 million, beating consensus estimates of 1.31 million.

However, starts for single-family homes only increased by 1.1% to 830,000.

Building permits increased by 13.8% to 1.339 million, with a 7.6% rise for single-family homes.

“US housing starts were much stronger than expected in February, with a surge in the volatile multi-sector accounting for most of the increase,” Nancy Vanden Houten and Ryan Sweet at Oxford Economics said in a research report.

“The rise in single family starts in February, albeit modest, suggests that the housing sector may have bottomed in January.”

Still on data, manufacturing activity in the US mid-Atlantic region failed to rebound as expected in March, according to a survey by the Federal Reserve Bank of Philadelphia.

The factory sector index increased from -24.3 in February to -23.2 in March, worse than economists’ expectations of -14.5.

The sub-index tracking new orders also fell from -13.6 to -28.2.

Earlier in Europe, rate-setters in Frankfurt raised short-term interest rates by 50 basis points, despite the recent stress in the banking sector on both sides of the Atlantic.

The European Central Bank stated that the move was in line with its goal of achieving a “timely return” of inflation to its 2.0% medium-term target.

However, the bank also acknowledged the “elevated” level of uncertainty and emphasised its data-dependent approach.

Some analysts had argued that not following through with the guidance might be perceived as a sign of serious concerns around lenders.

Adobe beats the Street, Charles Schwab falls further

In equities, Adobe rose 5.9% after the release of its quarterly earnings report, which surpassed Wall Street’s expectations.

The creative software giant’s positive results were released on Wednesday after the closing bell.

On the downside, however, Charles Schwab Corporation declined 2.8%, despite executives revealing they had purchased nearly $7m worth of its shares on Tuesday and Wednesday.

The financial services provider’s stock had taken a hit in the banking turmoil this month, falling by almost 25%.


Friday newspaper round-up: Royal Mail, payments providers, Atom Bank

The chief executive of Royal Mail has been accused of “incompetence or cluelessness” by MPs calling on the regulator Ofcom to investigate whether the company broke legal service requirements. Parliament’s cross-party business, energy and industrial strategy (BEIS) committee has asked the watchdog to investigate a suspected breach of the universal service obligation (USO), which requires the postal operator to deliver letters nationwide six days a week. – Guardian

Payments providers have been ordered by the City watchdog to strengthen their controls as fears of another financial crisis continue to haunt markets. The Financial Conduct Authority (FCA) threatened to shut down so-called shadow banks – which offer deposit and transfer services without a banking licence – unless they “ensure your customers’ money is safe”. – Telegraph

A British challenger bank that has championed a four-day working week is seeking £150m in fresh funding from investors. Atom Bank, which has no branches and serves customers through a smartphone app, has reportedly approached investors about raising more money after previously raising £30m in November. – Telegraph

A £205 million annual funding package announced yesterday for the next batch of renewable power projects will be insufficient to spur required investment, the government has been told. Proposed wind, solar, tidal and geothermal electricity projects are expected to compete in this year’s auction for contracts that guarantee them a fixed price for electricity. – The Times

A top five shareholder in British American Tobacco has called for the cigarette group to move its primary listing to New York. Rajiv Jain, founder of the $92 billion US-based investment firm GQG Partners, has urged bosses at the FTSE 100-listed owner of Lucky Strike and Dunhill cigarettes to shift its listing from London, which dates back to 1912. – The Times


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