UK and Bank of England Take Emergency Steps

Arthi Gupta
15 Jun, 2012
New York City

The UK indexes rose and deficit widened and construction output fell in April. Hong Kong Exchange parent agreed to acquire London Metal Exchange for

[R]1:40 PM London – The UK indexes rose and deficit widened and construction output fell in April. Hong Kong Exchange parent agreed to acquire London Metal Exchange for £1.39 billion. Diageo acquired additional 10.6% stake in Vietnam-based Hanoi Liquor.[/R]

The UK indexes edged higher ahead of the Greek election Sunday as investors prepare for all possible outcomes and traders focused away from the Greek election to the possible regulatory response and the impact on the economies of the region.

The Bank of England took anticipatory steps and offered added liquidity in the event financial markets seized after the Greek election on Sunday.

The Bank of England offer new liquidity in pounds dubbed as Extended Collateral Term Repo Facility to mitigate risks to financial stability stemming from a shortage of sterling and pumped more cash in the financial system.

The new facility is expected to offer short term lending to banks with collateral and offer loans for six months against specific collateral. The liquidity will be offered via monthly auctions beginning on June 20 with each auction of at least £5 billion.

Markets also reacted positively after Chancellor of the Exchequer George Osborne said that the government is working on a plan with the Bank of England to offer £100 billion in support programs for the UK economy.

Oborne said at a gathering of bankers in London, “things could get worse before they get better” in the euro zone and repeated his prognosis that more actions among the members of the currency union only may only follow in the extreme case such as the departure of Greece.

In London, the benchmark index FTSE 100 gained 24.50 or 0.5% to 5,491.22 and the pound edged higher to $1.5536. For the week, the FTSE 100 climbed 1%.

Swiss National Bank and Bank of Japan also took preliminary steps to stem the rise of domestic currencies beyond the target price.

UK Deficit Widens

The UK trade deficit increased a seasonally adjusted £10.1 billion in April from £8.7 billion in March, data from the Office for National Statistics showed today.

Exports dropped 8.6% from a month ago and imports fell 2.5% in April.

UK Construction Output Falls

UK construction output decreased 8.5% on an annual basis in April, data released by the Office for National Statistics showed.

The overall volume of new construction works decreased 11.2% annually, while repair and maintenance works dropped 3.1%.

Hong Kong Exchanges Acquires LME

Hong Kong Exchanges & Clearing Ltd. agreed to acquire London Metal Exchange for a value of £1.39 billion or $2.18 billion.

As per the terms of the offer the subsidiary HKEx Investment will buy LME Holdings for £107.60 per ordinary share in cash and implies a value of £1.39 billion based on 12.9 million ordinary shares.

The transaction is expected to close during the fourth quarter of 2012.

Gainers & Losers

Aggreko plc slumped 4.4% to 2,064 pence after the temporary power generation company estimated first-half organic revenue to grow 15% and trading profit to rise 20%. On a reported basis, group revenue and trading profit are projected to increase 14% and 25% respectively.

Diageo plc rose 0.2% to 1,602 pence after the premium drinks business acquired an additional 10.62% stake in Hanoi Liquor in Vietnam for a consideration of approximately £14.0 million raising its total equity stake in Halico to 45.52%.

GlaxoSmithKline plc fell 0.7% to 1,450.07 pence after the healthcare group received the U.S. Food and Drug Administration approval for MenHibrix, a combination vaccine to prevent invasive disease.

SSE plc dipped 0.4% to 1,384 pence after the electricity company through its wholly-owned subsidiary SSE Generation Ltd. agreed to acquire the shares of Endesa Ireland Limited for €320 million cash or around £256 million plus an estimated €43 million or £34 million for working capital.