BoE, ECB on Hold; Barclays Profit Decline 35%

123jump.com Staff
07 Aug, 2008
New York City

The Bank of England left its key rate unchanged at 5% and ECB left its key rate at 4.25%. UK is facing slowing housing market and manufacturing and service sectors and retail sales are falling as well. However, food and energy prices are rising. The economies in Europe and UK are slowing down but inflation pressures are expected to rise. The comments of the ECB chief were interpreted as further hikes in the rates are less likely and may be lowered by the end of the year.

[R]2:20PM New York, 6:00PM London – The central banks in UK and Europe leave rate unchanged as economy weakens. Barclays profit declined 35% in the first half and kept its dividend at 11.5 pence for the period.[/R]

Stocks in London fell after a report showed that U.K. house prices slid 1.7% in July. The Bank of England left its key rates unchanged at 5% and ECB left its key interest rate at 4.25%. Financial stocks increased as Barclays profit declined 35% and the bank kept its dividend unchanged.

Market Sentiment

In London trading FTSE 100 fell 0.16% or 8.6 to 5,477.50. Of the 102 FTSE 100 stocks 45 rose, 56 declined, and 1 was unchanged. Eurasian Natural led advancers in the index shares after oil prices rose to $120 a barrel on increasing supply constraints.

BoE and ECB Leave Rates Unchanged

The Bank of England kept its key interest rate at 0.5%. The Committee’s latest inflation and output projections will be published on August 13 this month, while minutes of the meeting will be published on August 20.

Separately, the European Central Bank also kept its key rate at 4.25% after raising them last month. The ECB chief Trichet in his comments to reporters suggested that the economic growth will be weak in the third quarter. He further cited that pressure to increase wage are rising and risk for a rise in inflation have increased in the last few months.

His comments were interpreted by economists that any additional hike in rates in the rest of the year will be unlikely as growth slows. After the euro zone economy expanded at 2.7% rate in 2007, the economy is expected to slow to 1.8% in 2008 and 1.9% in 2009 according to projections from the central bank.

UK House Prices Fall 1.7% in July

HBOS reported on its Web site today that the Halifax House Price Index dropped 1.7% from a month ago and slumped 8.8% to £177,351 in July.

The mortgage lender said in the report that the labor market is mainly the key driver of the housing market, adding that the number of people in employment increased by 61,000 over the quarter to May compared with the previous quarter and by 413,000 from a year ago to 29.59 million.

Also average rates on outstanding mortgage loans declined by 21 basis points during the first half of 2008 from 5.97% in December 2007 to 5.76% in June 2008.

Economists fear that the high level of average house prices relative to earnings is making it increasingly difficult for potential buyers, especially first-time buyers, to enter into the market, while declining credit availability from the financial market turmoil is burdening buyers.

HBOS indicated that the number of mortgages approved in the second quarter was 60% lower from the quarter a year earlier.

IMF Downgrades UK’s Growth Forecast

International Monetary Fund yesterday cut U.K’s economic growth forecast for this year to 1.4% from 1.8% forecast in May.

Economic growth is further expected to ease to 1.1% in 2009 from the previous forecast of 1.7%, while inflation is projected to rise to 5% from 3.8% as estimated in June.

Gainers & Losers

Eurasian Natural led advancers in the FTSE 100 index shares with a rise of 9.83% followed by increases in Smith & Nephew of 5.20%, in G4S Plc of 4.65%, in Antofagasta of 4.42%, and Drax Group of 3.99%.

Eurasian Natural and other commodity stocks increased after oil prices rose to $120 a barrel on mounting supply concerns. Gold inched higher as well.

Liberty International led decliners in the FTSE 100 index shares with a fall of 5.39% followed by losses in Friends Provident of 4.91%, in British Airways of 4.85%, in Carnival of 4.34%, and International Power of 3.33%.

Retailers also fell. Sainsbury shed 2.92%, Kingfisher slipped 2.67%, Tesco declined 2.58% and Next slumped 2.28%.

Barclays 1H Profit Declines 35%

In the first six months ended June 30, Barclays reported profit attributable to equity holders of the parent fell by 35% to £1.7 billion from £2.6 billion in the same period a year ago higher than estimates of £1.5 billion from many analysts.

The lender said impairment charges and other credit provisions of £2.44 billion included charges related to US subprime mortgages and other credit market exposures of £1.1 billion. Barclays rose 1.63% and Standard Chartered gained 1.95% as a result.

In the first half the bank net write down increased to 2.4 billion pounds, twice the amount in the same period last year. Barclays reported a loss of 2.3 billion losses in 2007 and losses are expected to rise in the second half of the year.

The bank lowered its exposure to CDOs by 31% to 3.2 billion pounds and sub-prime loans in the U.S. by 35% to 3.3 billion and commercial mortgage related securities 11% to 11 billion pounds.

Still, the results beat forecasts of most analysts and the stock rose 1.7% to 375 pence. The bank reported profit rise between 5% and 7% at consumer banking unit, credit card division and its South African unit called Absa. Mutual funds management unit reported a profit decline of 32%.

Europe Markets Review

In London FTSE 100 Index closed lower 8.60 or 0.16% to 5,477.50, in Paris CAC 40 Index increased 9.10 or 0.20% to close at 4,457.43 and in Frankfurt DAX index lower 17.90 or 0.27% to close at 6,543.49. In Zurich trading SMI decreased 27.27 or 0.38% to close at 7,182.07.

CAC 40 Gainers & Losers

Dexia led the decliners in the CAC 40 index with a loss of 10.39% to $8.97 followed by losses in Vivendi of 4.53% to $25.92, in Air France-KLM of 4.32% to $17.49, in Alcatel-Lucent of 2.61% to $4.10 and in L’Oreal of 2.60% to $68.52.

Veolia Environ led the gainers in the CAC 40 index with a rise of 8.18% to $35.97 followed by increases in EDF of 6.27% to $56.91, in AXA of 4.98% to $21.395, in STMicroelectronics of 3.81% to $7.962 and in Alstom of 2.79% to $72.15.

DAX Gainers & Losers

Of the 30 stocks in the DAX Industrial Average 11 stocks gained and 19 declined.

Deutsche Boerse led the decliners in the DAX Industrial Average with a loss of 3.53% or $2.57 to $70.23 followed by losses in Deutsche Postbank of 3.53% or $1.58 to $43.16, in Adidas AG of 2.57% or $1.12 to $42.42, in Deutsche Lufthansa of 2.05% or $0.32 to $15.29 and in Muenchener Reinsurance-R of 1.79% or $2.02 to $110.96.

Man AG led the gainers in the DAX Industrial Average index with a rise of 2.78% or $1.82 to $67.39 followed by increases in Commerzbank of 2.02% or $0.44 to $21.96, in Infineon Tech of 1.58% or $0.08 to $5.46, in Daimler AG of 1.25% or $0.50 to $40.48 and in RWE AG of 1.01% or $0.76 to $76.36.