Record Libor Rate, Kingfisher Down

123jump.com Staff
27 Mar, 2008
New York City

Money markets remained tight as interbank interest rare rose to near record high for the year. Banks remain unwilling to extend loans to other banks despite several auctions by central banks in the UK and Europe to ease the liquidity. Separately, Man Group said earnings will be higher than expected and Compass Group reported better than expected earnings. Kingfisher, home supplies retailer reported 20% decline in earnings.

[R]1:00PM New York, 6:00PM London - U.K. central bank to help ease liquidity on the financial markets. Kingfisher annual profit declines 20%. [/R]

London stock averages rose after a spate of robust earnings results and profit forecasts, including rising commodity prices. Man Group, the largest listed hedge funds operator, gained 3% after it said that earnings will top expectations. Compass Group, food service provider to institutions, jumped 3.5% after it reported higher than expected earnings. But earnings at Kingfisher fell.

But tightness in money markets dominated the news as interbank loan rates reached near record high.

Market sentiment

Money markets in Europe seized up again, and rates that bank charge rose, near recent highs today. Libor rate in pound rose to 6% from 5.76% at the end of February and Euribor rate jumped to 4.73%. The recent central bank auctions have failed to convince banks to lend money to each others. The spread between the euro rates that bank charges and at which banks borrow money increased to 72 points, 1 point below its widest margin for the year.

In London trading FTSE 100 advanced 1.01% or 57.1 to 5,717.50.

Of the 102 FTSE 100 stocks 80 gained, 21 declined and 1 was unchanged. Persimmon led advancers in the FTSE 100 index shares with a rise of 7.05%.

Crude oil prices increase

Crude oil prices jumped above $107 a barrel after saboteurs attacked a key export pipeline in Iraq near Basra. Nymex May West Texas Intermediate crude oil surged to $107.7 a barrel in Asian trading.

Iraq exports 2 million barrels a day and if pipeline disruption prevents oil from export terminals crude oil price may remain high. Before the news, oil had been on the decline in the last two trading session after the release of weekly inventory data in the U.S. Crude oil inventories in the U.S. remain at elevated levels and were unchanged at the end of last week.

Commodities rally

Gold prices rose to one-week high above $950 a troy ounce driven by renewed dollar weakness and concerns that rising oil prices would push inflation higher.

In addition, platinum prices increased to above $2,000 an ounce on speculation that throughput from South Africa will continue to be depressed as power supply concerns remain. Spot platinum in London grew by $20 to an intraday high of $2,010 an ounce.

Other metals advanced as well. Copper rose 1.4% to $8,335 a ton driven by another drop in London Metal Exchange warehouses stocks and expectations of declines of copper stocks in China.

Aluminum rose 0.5% to $2,972 a ton and tin surged 1.0% to $20,550 a ton.

U.K. to help ease liquidity

Separately, the Financial Times also reported that U.K’s Bank of England Governor Mervyn King said in a statement to the British parliament that bank’s lending against mortgage-backed securities was “a useful bridge to a longer-term solution”, but can “be only a temporary measure”.

King also added that a longer-term resolution was needed to deal with the “fragility” of financial markets and to relieve the “overhang on banks’ balance sheets of assets in which markets have closed”.

Gainers & Losers

Persimmon led advancers in the FTSE 100 index shares with a rise of 7.05% followed by rises of Cairn Energy of 4.84%, in Wolseley Plc of 4.74%, in First Group Plc of 4.04%, and British America Tobacco of 3.77%.

Cairn Energy increased after crude oil prices rose on turmoil in Iraq.

Wolseley Plc gained 2.5% after Goldman, Sachs & Co. raised its recommendation for the stock to ``neutral'''' from ``sell.''''

Kingfisher led decliners in the FTSE 100 index shares with a fall of 3.48% followed by losses in Kazakhmys Plc of 2.43%, in Experian Group pf 1.12%, in National Grid Plc of 1.12%, and Intercontinental of 0.96%.

Kingfisher fell after reporting profit in the year ended February 2 slumped 20% from 2006 to £272 million. Also the retailer also slashed its final dividend and annual dividend by 50% to 3.4 pence and 35% to 7.25 pence.