Political Deadlock in UK; Weak Pound

Arthi Gupta, Mayank Mehta and Sanjay Barot
11 May, 2010
New York City

U.K. stocks weaken as doubts persist over the implementation of the European Union''s bailout package. Commodity stocks decline as metal and oil prices fall. Political deadlock continues in the UK but the prospects of a Lab-Lib alliance improve. The UK output rises 2.0% in March.

[R]4:00 PM London, 11:00 AM New York – U.K. stocks weaken as doubts persist over the implementation of the European Union''s bailout package. Commodity stocks decline as metal and oil prices fall. Political deadlock continues in the UK but the prospects of a Lab-Lib alliance improve. The UK output rises 2.0% in March.[/R]

U.K. stocks weaken as doubts persist over the implementation of the European Union''s bailout package.

Chinese inflation edged up to an 18-month high in April, raising concerns about potential monetary tightening measures and commodities tracked lower.

Investors were apprehensive whether weaker euro-zone economies can meet their part of the bargain and deliver drastic debt cuts. A $1 trillion rescue package was not enough to convince investor sentiment on doubts about Greece''s ability to cut its budget deficit.

Britain''s Liberal Democrats said talks to form a new government had entered a decisive phase on Tuesday, after Prime Minister Gordon Brown agreed to step down in six months and let the Labor Party elect a new candidate.

Conservative leader David Cameron said it was ""decision time"" for the smaller party. The Conservatives emerged as the largest party in parliament but fell 20 seats short of an outright majority.

Britain’s political leaders must ease the post-election deadlock by the end of the week to avoid unsettling investors, said Richard Lambert, head of the U.K.’s biggest business lobby.

The pound was weaker against the dollar, quickly reversing a brief recovery after March industrial output showed the biggest surge in eight years.

The U.K. currency fell 0.5% to $1.4767 after sliding to as low as $1.4721, and declined 1.5% to 136.49 yen. Sterling appreciated 0.3% to 85.86 pence per euro.

The 10-year gilt yield was little changed at 3.93%, after reaching 4.02%, the highest since April 26.

Commodity stocks declined as metal and oil prices fell.

In economic news, the average asking price for a home in the United Kingdom rose sharply in April, the Royal Institution of Chartered Surveyors said on Tuesday. According to the data, 17% more surveyors reported a rise in home prices than a decline compared to 9% in March.


On the economic front, British house price growth accelerated in April, a survey indicated, with new buyers lured by a favorable interest rate outlook and expectations of a post-election bounce.

The Royal Institution of Chartered Surveyors said its monthly house price balance rose to +17 last month from an eight-month low of +9 in March.

Separately, April retail sales in the U.K. declined in value by 2.3% on a like-for-like basis compared to a year ago month, according to data released today by the British Retail Consortium and KPMG.

Total production output in March rose 2.0% from a year ago. Output in mining declined 3.1% and energy fell 1.8%. Manufacturing output increased 3.3% in March from a year-ago month.

Insurer Aviva plc reported a marginal decline in sales in the first quarter, owing to lower contribution in new life and pension sales from North America, but sequentially sales increased 16%.

ABN Amro Bank N.V., now part of Royal Bank of Scotland Group Plc, has agreed to pay $500 million for violating the Bank Secrecy Act or BSA, and for conspiring to defraud the U.S. by violating U.S. sanctions, according to a release by the U.S. Department of Justice on Monday.

In London FTSE 100 Index closed lower 89.61 or 1.66% to 5,297.81 and the pound edged lower to close at $1.477 and edged higher to close at €1.163.

Gainers & Losers

Aviva plc, the life insurer fell 0.3% to 337.70 pence.

Babcock International Group PLC added 1.4% to 565.00 pence. The engineering support services company said 2009 revenues were flat at £1.90 billion. Net profit for the year rose 47% to £106.0 million or 46.10 pence per diluted share compared to net profit of £72 million or 31.38 pence per share a year ago.

The Capita Group Plc fell 2.8% to 776.50 pence.

Diageo plc fell 0.8% to 1,086.00 pence.

Enterprise Inns plc surged 10.8% to 135.30 pence. The leased and tenanted pub operator said first half revenues fell 7.4% to £374 million from £404 million a year ago. Net profit for the first half was £82 million or 16.4 pence per diluted share.

easyJet plc decreased 3.1% to 428.20 pence. The low-cost airline said first half revenues rose 13.6% to £1.17 billion from £1.03 billion a year ago. Net loss for the first half was £58.9 million compared to net loss of £85.9 million a year ago.

InterContinental Hotels Group PLC fell 0.8% to 1,097.00 pence. The international hotel group said first quarter revenues rose 3% to $362 million from $351 million a year ago. Net profit for the quarter rose 100% to $54 million or 18.3 cents per diluted share compared to net profit of $27 million or 9.5 cents per share a year ago.

Inmarsat plc fell 0.8% to 752.50 pence. The satellite operator said revenues for the first quarter rose 11.8% from last year, mainly driven by an increase in company’s global revenue and contribution from Segovia acquisition.

The Royal Bank of Scotland Group plc fell 3.6% to 14.72 pence.

Serco Group plc, the holding company rose 0.4% to 618.50 pence.

Southern Cross Healthcare Group PLC declined 6.4% to 65.50 pence. The care-home operator said first half revenues rose 4.3% to £480.7 million from £460.8 million a year ago. Net loss for the first half was £17.9 million or 9.52 per diluted share compared to net loss of £15.3 million or 8.14 per share a year ago.

SuperGroup PLC fell 0.8% to 555.00 pence.

TalkTalk Telecom Group PLC dropped 3.7% to 124.40. The fixed-line and broadband provider said 2009 revenues rose 21.6% to £1.69 billion from £1.39 billion a year ago. Net profit for the year was £103.0 million or 11.3 pence per diluted share.

TUI Travel PLC dropped 1.9% to 253.70 pence after the international leisure travel group said first half revenues fell 8.3% to £4.93 billion from £5.38 billion a year ago. Net loss for the first half was £320 million compared to net loss of £334 million a year ago.