City sources predict FTSE 100 will open down 22 points from yesterday’s close of 5,396.
Stocks to watch
Lloyds is very much back in the black after posting a profit of Ł1.6bn for the first half of 2010, twice as much as some analysts had forecast. The bank, which lost almost Ł4bn this time last year and is still 41%-owned by the government, added that total impairments more than halved to Ł6.55bn from Ł13.40bn a year ago. Total income net of insurance claims increased by 5% to Ł12.48bn, mostly due to Ł6.6bn of new retail deposits. The retail business made a profit of Ł2.50bn, but Wealth and International lost Ł1.61bn.
Insurance giant Legal & General (L&G) topped market expectations with its interim figures and has rewarded shareholders with a 20% hike in the dividend. European Embedded Value (EEV) operating profit in the first half of 2010 was Ł589m, down from Ł656m the year before but ahead of most broker forecasts. "The outlook for our markets in the second half of 2010 and into 2011 continues to be mixed,” chief executive Tim Breedon said.
Impairment provisions were sharply lower at Asia-focused bank Standard Chartered in the first half of 2010 as pre-tax profit improved 10% year on year. Profit before taxation of $3,116m was up 10% from $2,838m in the corresponding period of 2009 but, as was the case for most performance metrics, the comparison with the second half of last year was much more flattering, with profits showing a 35% improvement from the $2,313m in the last six months of 2009.
In the Press
Interest rates may have to rise far more sharply than households and markets expect as the Bank of England moves to head off inflation risks, the former deputy governor said yesterday, the Times reports. Sir John Gieve told a City of London audience that solid economic growth could prompt the Bank to raise rates to between 2.5% and 3% in 2011 — above market expectations. Attending the same conference, Brian Coulton, an analyst at the credit rating agency Fitch, said that the risk of inflation now trumps that of deflation and that the Bank must make sure it does not get “behind the curve” in tackling rising prices.
Citigroup is preparing to sell Egg, its UK online banking business, as part of its plans to dispose of peripheral operations. The American banking group is thought to be planning to launch an auction for the business in the autumn with a view to selling Egg this year. Citi has made clear its intention to sell off non-core assets. The bank is under political pressure to repay the US government after it received tens of billions of dollars in taxpayer support during the financial crisis, the Telegraph reports.
BP faces penalties of more than $20bn (Ł12.5bn) for the Gulf of Mexico oil spill under the US Clean Water Act if the UK group is found liable for gross negligence, according to the latest estimates of the leak’s size. The new estimates of the spill’s impact came as BP started its “static kill” plan to plug the well earlier than had been expected because of positive results from tests, the FT reports.
Newspaper tips
HSBC is present in 87 countries around the world but is, sensibly, focusing its firepower on Asia because it believes the Chinese economy will outstrip the US by 2020. The market is expecting substantial increases in the dividend payment over the next few years with the prospective yield for the shares rising from 3.5% this year to 4.2% in 2011 and then to 4.6% in 2012. The shares are trading on a December 2010 multiple of 14.5, falling to 10.8 next year. The shares remain a buy says the Telegraph.
Taylor Wimpey provided a much-needed ray of hope for investors in the house-building sector yesterday with a well-received set of results as the company returned to profit (Ł19.6m at the pre-tax level). The current level of around 30p, that leaves the stock at a significant discount to brokers’ 58.7p estimate of the current Net Asset Value per share. Debt levels remain a worry as does the fact that the hoped-for sale of the company's North American assets has yet to materialise. Hold says the Independent.
Mouchel has had a year to forget. The outsourcing company fought a rearguard action against a hostile takeover by VT Group and now faces the prospect of hefty cuts to its lifeblood — public sector projects. There is no doubt that at a mere 5˝ times next year’s forecasts, Mouchel is cheap. Yet there appear to be few catalysts for a re-rating of the stock in the short term and plenty of potential for further jitters. Sell says the Times.
US close
Stocks closed lower after economic data gave a mixed view of US economic activity. Across the markets, the Dow dropped 38 points to 10,636. Nasdaq fell 11 points to 2,283. The S&P 500 ended down 5 points at 1,120.
Factory orders dropped 1.2% in June, which was a much greater fall than expected. The May figure was revised to a 1.8% decline. Personal income was unchanged in June, while consumer spending rose 0.1%, according to the Commerce Department. Pending-home sales for June decreased by 2.6%, which was better than the expected 5% decline.
The Fed appears unlikely to provide further stimulus this month while it waits to see if the economy continues to weaken.
On the corporate front, the car makers reported better US sales in July, which should help the seasonally adjusted annual sales rate rise close to 12m in the month.
General Motors reported that overall sales gained 5% from a year ago, a period that saw it emerge from bankruptcy.Ford's sales also rose 5% as a 27% jump in light trucks was balanced by lower sales of both cars and SUVs.
(source:digitallok)
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