LONDON Pre-Market Report: BP succeeds in plugging Gulf leak

City sources predict FTSE 100 will open up 59 points from its previous close of 5,332. 

Stocks to watch 

BP’s “static kill” and cementing procedures at the broken MC252 well have been “successful”, stopping oil from leaking into the Gulf of Mexico, the oil giant confirmed Monday. The first of two relief wells should also make contact with the original well on 15 August. The disaster has cost the company $6.1bn so far, including $319m to settle almost 104,000 claims. Another 41,000 claims are currently being processed. 

Drug giant AstraZeneca has agreed to pay a total of $198m in compensation to about 17,500 claimants in the US in relation to its bipolar disorder treatment Seroquel. The terms of the agreements, which came after court mediation, are confidential, Astra said. The payments will not be reflected in 2010 earnings and guidance for profits in the year remains unchanged at $6.35 to $6.65. 

Pub and restaurant group Mitchells & Butlers is to sell the operations and leaseholds of its Hollywood Bowl business for Ł27m cash to AMF Bowling. M&B will also sell the remaining freehold property interests in four of the sites for at least Ł12m “in due course”. 

In the Press 

The Bank of England has warned Lloyds and Royal Bank of Scotland that they could face penalties from Brussels if there was an extension of the special funding scheme put in place during the financial crisis. The Bank believes that such an extension could break European Union state aid rules, because it would primarily help the two state-controlled banks rather than the banking sector, the Times says. 

BP, the embattled oil company, has confirmed that a test on the cementing operation needed to plug its leak in the Gulf of Mexico had been successful. The company said that tests had indicated that there was an effective cement plug in the blown-out pipe, “which was the desired outcome”. The success - almost four months after the catastrophic leak started - came after an earlier procedure known as ‘static kill’ was launched to stem the flow of oil. That process involved filling the pipe with mud and cement from the top, the Telegraph reports. 

The price of barley, an important feed grain for the European livestock industry, has more than doubled in six weeks in response to the drought affecting Russia and Ukraine, prompting fears of increases in the cost of meat and poultry. European feed barley has risen to €210 a tonne, up 130 per cent from €90 a tonne in mid-June. Traders said feed barley was trading at par with milling wheat, an unusual situation, the FT reports. 

Newspaper tips 

The economic outlook is uncertain, but whatever the scenario, people still have to eat. Sainsbury's has become increasingly popular with consumers, the shares at 347p offer a decent 4.4% yield and there is always the possibility of a takeover from the Qatar Investment Authority, which bid unsuccessfully once before and retains a 26% stake. A solid investment. Buy says the Mail on Sunday. 

Rio Tinto is a story of earnings momentum – as last week's interim numbers showed. Almost half of the company's earnings came from its iron ore operations. It also generated almost one-fifth of its earnings from coal and has a large exposure to copper, the metal with one of the tightest supply situations. The shares are trading on a December 2012 earnings multiple of just 7 times, falling to 6.4 in 2011. The yield is 1.7%. Buy says the Telegraph. 

There is a lot of opportunity for investors in the insurance sector – particularly for those seeking income. Aviva’s 6.2% dividend yield remains attractive and the current share price level is still a good entry point for income-seekers or those wanting to employ a strategy reinvesting their dividends. Buy says the Telegraph. 

US close 

Wall Street bounced back near the close as investors had second thoughts over the latest non-farm payrolls report. After heavy falls initially, the Dow closed down 21 at 10,653. Nasdaq shed 4 at 2,288 and the S&P 500 fell 4 to 1,121. 

The economy shed 131,000 jobs in July, according to figures from the Labor Department, with 143,000 public sector census workers being laid off. 

Private non-farm payrolls expanded by 71,000 in July compared with the 83,000 jobs created in June. Economists expected the private sector to add 100,000 jobs in July. 

The unemployment rate was steady at 9.5%, better than expectations of a rise to 9.6% 

On the earnings front, AIG, the insurer which is nearly 80%-owned by the government, reported a loss of $2.66bn in the second quarter due to costs linked to the sale of Alico. Excluding the goodwill impairment charge, New York-based AIG made a $1.3bn profit for the three months period. 
Source:Digitallook