Xstrata Lift Miners, Fed Moves Financials

123jump.com Staff
30 Jul, 2008
New York City

UK stocks closed higher led by miners and financials. The Fed in a conjunction with the Swiss National Bank and the ECB increased its dollar loan facility in Europe, offered longer dated short term loans and extended its access to discount window facility to commercial banks. Separately, Lloyds TSB fell 5% after it reported 70% decline in profit for the first half. However, Xstrata rose 6% after it estimated higher copper and nickel prices and higher output in the second half.

[R]1:00PM New York, 6:00PM – The Fed extension of access to discount window and offering longer maturities to commercial banks in the U.S. and Europe lifted market sentiment in Europe and UK.[/R]

Stocks in London rose the U.S. Fed extended its access to term auction facility and emergency loan window to commercial banks, offered longer dated bonds and increased its lending facility to the Swiss National Bank and the European Central Bank.

The move is widely perceived to increase liquidity in the short term but banks remain guarded in their dealing with other banks and hoard cash on their books. Most banks are still not sure of the quality of assets on the books of other banks.

Market Sentiment

In London trading FTSE 100 rose 1.91% or 101.5 at 5,420.70. Of the 102 FTSE 100 stocks 81 rose, and 21 declined. Ferrexpo led advancers in the index shares with a rise of 11.73% followed by Admiral Group rising 10.79%.

Fed Reserve, ECB and Swiss National Bank Expand Liquidity Measures

The US Federal Reserve Bank reported on its Web site today that in view of the continued liquidity pressures in the credit markets the European Central Bank, the Federal Reserve, and the Swiss National Bank will expand their liquidity measures.

In particular, Federal Reserve said today it will increase the amount auctioned to eligible depository institutions under its biweekly Term Auction Facility from $50 billion to $75 billion, beginning with the auctions on August 11. The term auction facility was created to supplement the discount window access which carries a stigma of perceived as a facility for troubled banks. The Fed will provide 84-day loan in addition to 28-day loan to commercial banks and the total credit available under this program will be $150 billion.

In addition, the Federal Open Market Committee has authorized further increases in its existing temporary reciprocal currency arrangements with the European Central Bank and the Swiss National Bank and will add $50 billion and $12 billion to the ECB and the SNB, respectively, which reflects increases of $20 billion and $6 billion. Also the reciprocal currency arrangements have been extended through January 30, 2009.

The demand for dollar denominated loans in Europe remains high as in the latest auction this week, total of $101 bids were received from 63 banks for $25 billion auction.

Under the new arrangement, primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations.

The Fed’s move to extend the terms of loans does not solve the root cause of the current credit market seizure where banks are weary of lending each other. Banks are still hoarding cash and are unwilling to lend to each other and are not sure of the quality of assets on the books. Making more money available and extending maturity terms does nothing to improve the impaired assets on the books of many banks.

US Adds 9,000 Jobs in July

The private employer survey conducted by ADP Employer Services reported today that U.S. companies added 9,000 jobs in July from a drop of 77,000 in June. Economists expected a fall of 60,000 jobs. However private payrolls have dropped by 94,000 a month on average in the first half of the year.

Gainers & Losers

Ferrexpo led advancers in the FTSE 100 index shares with a rise of 11.73% followed by increases in Admiral Group of 10.79%, in Rexam of 9.50%, in Aviva Plc of 8.73%, and Vedanta Resources of 7.99%.

Commodity stocks also rose after Xstrata reported that it expects throughput to increase in the second half of year on bullish nickel and copper prices. Xstrata rose 6.17% as a result.

British Airways rose 5.84% and TUI Travel edged up 5.02% on falling crude oil prices.

Lloyds TSB Group led decliners in the FTSE 100 stocks with a fall of 4.67% followed by losses in Drax Group of 1.91%, in GlaxoSmithKline of 1.77%, in WM Morrison of 1.39%, and Smith Group of 1.15%.

Lloyds TSB fell after reporting a fall of 70% to 599 million pounds in the first six month earnings and the company blamed it on market ‘dislocation’ and ‘adverse volatility relating to insurance business.’

Retailers also plunged. Marks & Spencer shed 1.14%, Next declined 0.95% and Sainsbury dropped 0.84%.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 208.34 or 1.58% to 13,367.79, Hang Seng index in Hong Kong increased 432.60 or 1.94% closed to 22,690.60. ASX 200 index in Australia increased 89.30 or 1.84% to close 4,936.70. The KL Composite index in Malaysia increased 9.14 or 0.79% closed to 1,159.94.

The Kospi Index in South Korea increased 10.50 or 0.67% to close at 1,577.70. SET index in Thailand closed lower 6.83 or 1.01% to 669.90. The Sensex index in India increased 495.67 or 3.59% to 14,287.21. Market of Indonesia was closed today.

Europe Markets Review

In London FTSE 100 Index closed higher 101.50 or 1.91% to 5,420.70, in Paris CAC 40 Index increased 80.06 or 1.85% to close at 4,400.55 and in Frankfurt DAX index higher 61.32 or 0.96% to close at 6,460.12. In Zurich trading SMI increased 115.61 or 1.65% to close at 7,108.91.