Gold-fuelled gains tempered by banks once again
Hopes of debt-reducing measures at Rio Tinto and a jump in gold prices fuelled a mining sector rally on Wednesday, but index gains were held back by further falls from financials
But while US banks rallied, recouping the previous session’s losses, UK banks were the main drag on the FTSE 100 index, tempering commodities sector gains and forcing the blue-chip index to close just 21.18 points or 0.5% higher at 4,234.26. The FTSE mid-cap index failed to gain even one whole point, closing up 0.01% at 6,496.28.
Chief Executives from Barclays, Lloyds Banking Group and Royal Bank of Scotland were among those being cross-examined at today's UK Treasury committee hearing, while their counterparts at Bank of America, Citigroup and Morgan Stanley were among those facing a similar probing at the hands of a US committee.
After plummeting almost 5% lower on Tuesday, the Dow Jones Industrial Average was back on the up in Wednesday deals as investors digested the US Treasury’s financial rescue plan, with banks leading the risers. Meanwhile, the US trade deficit was shown to have shrunk more rapidly than ever recorded before, albeit by less than the market had feared, to a seasonally adjusted US$39.9 billion in December.
Here in the UK, the economy has been gripped by a “deep recession” according to Bank of England governor Mervyn King, speaking at a press conference following the release of the Bank’s quarterly inflation report.
The report implied that the British economy is likely to contract at a faster-than-previously-thought rate, meaning further unprecedented interest rate cuts and easing of monetary policy are on the cards.
The Bank now expects inflation to fall to just 0.5% in two years, well below its target of 2%, raising the need for both conventional and unconventional methods of easing fiscal policy. Gilts jumped in afternoon deals Wednesday while sterling took a tumble following King’s comments.
The release of the Bank’s inflation report followed concerning figures from the labour market, which revealed the official number of unemployed increased by 146,000 to 1.97 million in the three months to December.
By the end of the London trading session, Lloyds Banking Group was the main blue-chip casualty, down 7.9% at 87.4p, Barclays was next on the loser list, 4.3% lower at 108.5p, while Royal Bank of Scotland escaped relatively unscathed, just 0.8% weaker at 23.6p.
Financial sector falls partly offset gains in the energy and mining sectors, with Rio Tinto among the top gainers, 3.5% higher at 1,969p, on hopes the Anglo-Australian group will tomorrow announce a deal involving a capital injection of almost US$20 billion. The group is rumoured to be ready to sell assets and issues convertible notes to shareholder Chinalco, boosting the Chinese group’s stake to around 18-19% from 9% currently. Analysts remained mixed as to the desirability of such a move, however.
A fresh hike in precious metals prices, with gold jumping almost $30 per ounce to $943, helped the rest of the sector, with Randgold Resources to top blue-chip climber, up 7.7% at 3,300p and Kazakhmys 4.7% ahead at 304.75p.
Among those reporting earnings today, Reckitt Benckiser gained an enviable 7.6% to close at 2,820p after the household products group reported a 36% rise in fourth-quarter net income, accompanied by an upbeat outlook, and raised its dividend by 60% year-on-year to 48p. Peer Unilever was up 3.1% to 1,450p on the read-across, despite failing to provide any guidance itself when it reported numbers last week.
