- FTSE 100 tumbles as worries over banks resurface
- US banks pump US$30bn into First Republic but share price falls
- ECB holds unscheduled meeting; Credit Suisse falls 9%
1.28pm: Funds continue to flow out of Credit Suisse
As clients withdraw their cash at a dizzying pace, net outflows from Credit Suisse’s US and European managed funds topped US$450mln between Monday and Wednesday, the data firm Morningstar Direct has calculated.
The Swiss bank manages more than 300 European funds.
Credit Suisse shares have dropped again today, sinking around 9% on the Swiss stock exchange despite the £44.5bn central bank lifeline aimed at restoring investor confidence.
Shares in Switzerland's embattled second-biggest bank were down trading at 1.84 Swiss francs.
Morningstar also showed that UK funds have a minimal exposure to Credit Suisse with Blackrock ACS Eurp ex UK ESG Insgts fund the most heavily exposed with a 0.22% weighting as at the end of January.
In Europe, the Merch-Oportunidades FI fund in Spain had the largest exposure by weighting – 7.93% as at the end of February.
1.05pm: US futures extend falls
US futures have extended their falls heading to the market open. Dow futures are now down 291 points, or 0.9%. S&P 500 futures have fallen 0.9% as well, and Nasdaq futures are 0.3% lower.
First Republic has slid 21% in the premarket despite gaining nearly 10% in Thursday’s session, when a group of banks said it would aid First Republic with US$30bn in deposits as a sign of confidence in the banking system.
US-listed shares of Credit Suisse were also down 10.5%.
Back in London and the FTSE 100 has stabilised at its lows for the day, down 48.95 points at 7,361.08.
12.35pm: First Republic down in pre-market; FTSE tumbles
The sea of green is in dander of being replaced by a sea of red. London's lead index has tumbled to its worst levels for the day, now at 7,356.46, down 53.57 points, or 0.72%.
Shares in First Republic Bank were down in pre-market trading in the US on Friday, despite the largest US banks coming together to deposit over $30bn to shore up its finances and prevent a third US bank collapse in a week.
First Republic stock was down 11.8 per cent to $30.23 in pre-market trading in New York, after closing up 10 per cent at $34.27 on Thursday.
The move suggests investors still have questions about First Republic, despite the rescue deal orchestrated by US Treasury secretary Janet Yellen, JPMorgan chief executive Jamie Dimon and Federal Reserve chair Jay Powell.
Billionaire investor Bill Ackman warned that the Fisrt Republic Bank default risk is being spread to the largest banks. “Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy,” he said in a tweet. “The SIBs would never have made this low return investment in deposits unless they were pressured to do so and without assurances that FRB deposits would be backstopped if it failed. The market has responded to this fictional vote of confidence with a 35% after-market decline in FRB stock.”
11.55am: ECB holds unscheduled meeting; Credit Suisse drops 10%
The European Central Bank held an unscheduled meeting of its supervisory board this morning to discuss stress and vulnerabilities in the eurozone banking sector after the recent selloff in bank shares, a spokesperson told Reuters.
The supervisory board, which directly oversees 111 lenders in the eurozone, normally meets every three weeks but held two impromptu meetings this week.
The spokesperson told Reuters: "The supervisory board is meeting to exchange views and to provide members with an update on recent developments in the banking sector."
Reuters reported, citing a source, that the purpose of the meeting was to monitor liquidity in the eurozone banking sector and watch for any vulnerability to a run on any bank, but the source did not expect the ECB to take any immediate action.
Banking shares have come renewed pressure with Credit Suisse now down 10%.
The Euro Stoxx 600 banks index was also lower, conceding gains, at 144.19, down 0.56, or 0.39%.
The FTSE 100 is now at 7,407.20, down 2.83 points.
11.50am: US markets seen lower
Wall Street is expected to open lower, reversing some of Thursday’s strong gains after news of a bailout package for First Republican Bank to help stem further contagion in the sector helped fuel a recovery, with investors now looking to next week’s Federal Open Market Committee (FOMC) meeting for the Fed’s interest-rate response.
Futures for the Dow Jones Industrial Average declined 0.4% in Friday pre-market trading and those for the broader S&P 500 index shed 0.3%, while contracts for the Nasdaq-100 were flat.
A group of 11 financial institutions, including tier-1 banks Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)) and Morgan Stanley (NYSE:MS) (Morgan Stanley (NYSE:MS)), deposited $30 billion at embattled First Republic Bank, saying in a statement that regional, midsize and small banks are critical to the health and functioning of the financial system.
At the close on Thursday, all three major indices were in positive territory, with the Nasdaq leading the way at 11,717 points for a 2.5% gain, while the S&P 500 saw a 1.8% recovery to close at 3,960 and the Dow gained 1.2% to 32,247 points.
With stock futures turning negative, James Hughes, chief market analyst at Scope Markets, said “ the sentiment right now does seem to be souring.”
“That’s arguably no surprise following another US regional bank rescue last night and the fact that today also see triple witching hour when there’s a whole slew of US options set to expire just ahead of the closing bell,” Hughes commented. “There’s also the prospect of another FOMC policy meeting next week which almost inevitably seems set to see a further quarter point added to the target rate.
“Economic data today revolves around the Michigan Consumer Sentiment which may show a modest uptick, something that Fed policy hawks could call on to defend their stance, but it’s difficult not to be looking at market behaviours this week and conclude that something looks broken,” he added.
Back in London and the FTSE has moved the wrond side of the line, down 1 point, at 7,408.
11.30am: UK only G20 economy, other than Russia, that will shrink in 2023
The UK will be the only economy in the G20 apart from Russia to shrink this year as high inflation, the energy crisis and low productivity hinder its recovery, according to the OECD.
The OECD said all major EU economies will expand in 2023 at a stronger pace than it had forecast last year, leaving Britain and Russia the only members of the G20 group of wealthy nations to suffer a decline.
In its half-yearly outlook, the Paris-based organisation said the UK economic outlook had improved slightly compared with its forecast in November of a 0.4% contraction, largely in response to falling gas prices, but would still shrink by 0.2% this year.
Overall it raised its global economic growth forecast as inflation eases and China emerges from Covid restrictions, but warned of vulnerabilities as seen in the US bank sector turmoil. It now expects the global economy to grow by 2.6% this year compared to 2.2% in its previous forecast in November.
11.12am: US triple witching likely to add to Friday's fun
As if traders don't have enough to fret about, Friday’s options expiration in the US could cause further volatility.
An estimated US$2.7 trillion of derivatives spanning an estimated 102mln contracts tied to stocks and indexes are scheduled to mature, obliging Wall Street managers to either roll over existing positions or start new ones. The process usually involves portfolio adjustments that lead to a spike in trading volume and sudden price swings.
Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options contracts all on the same trading day. This happens four times a year: on the third Friday of March, June, September, and December. So today is the day.
Back in London and the FTSE 100's rally is in danger of running out of steam, with the lead index now up just 20 points.
10.44: London Stock Exchanged lifted by UBS upgrade
One prominent riser today is London Stock Exchange Group PLC (LSE:LSEG).
UBS has upgraded the stock to’buy’ from ‘hold’ and raised its price target 2% to £87.
The Swiss bank has taken a bullish view on revenue growth estimates predicting compound annual growth rates between 2022-25 of 8%, above the market consensus of 7.2%, largely driven by an upgrade to the outlook for the company’s Trading & Banking division.
“We argue LSEG shares are cheap at current levels, trading at the lower end of its 24-month trading range
of £70-85.” The broker noted the forward P/E multiple (using consensus estimates) of 20x is near a 5-
year low and given the improved messaging from the company following its full-year 2022 results, views the risk-reward profile to be very favourable at current valuations.
“We think LSEG can comfortably increase its revenue growth outlook to 6-8%, putting it inline with the targeted revenue growth rates of several of US Info Services companies which we think will drive multiple expansion,” analysts at UBS wrote.
Shares in London Stock Exchange rose 1.6% to 7,400p mid-morning on Friday.
Meanwhile the FTSE 100 has slipped back from earlier highs, now up 38 points.
10.38am: EU inflation cools in February, in line with forecasts
Inflation was confirmed to have cooled slightly in February, final figures showed, though core inflation edged up.
According to Eurostat, eurozone harmonised inflation eased just slightly to 8.5% in February from 8.6% in January.
Euro area annual #inflation at 8.5% in February 2023, down from 8.6% in January https://t.co/d0wI44Cps2 pic.twitter.com/M0qPToGjtm
— EU_Eurostat (@EU_Eurostat) March 17, 2023
On a monthly basis, harmonised prices rose 0.8% in February, more than reversing a 0.2% fall the previous month.
Core inflation - which excludes energy, food, alcohol & tobacco - ticked up to 5.6% annually, from 5.3% in January. Monthly core prices rose 0.8%, reversing a 0.8% fall the previous month.
The figures were unrevised from the flash estimate released on March 2.
10.30am: CMA finds Emis deal could hurt competition
The UK Competition & Markets Authority said its initial investigation has found that UnitedHealth Group Inc (NYSE:UNH)'s £1.2bn deal to acquire Emis Group PLC could reduce competition in the UK health sector, "leading to worse outcomes for the NHS and ultimately patients and UK taxpayers".
As part of its phase 1 probe, the CMA found competition in the fields of population health management and medicines optimisation software would be hurt by the deal. Both Emis and UnitedHealth-owned Optum Health Solutions (UK) Ltd provide software services to GPs in the UK.
The CMA said it is concerned that, if the merger went ahead, Optum could choose to limited digital connections to data that is held by Emis, which it said would "unfairly undermine competing businesses", which would leave the NHS facing fewer options and higher prices or lower quality offerings.
Emis and UnitedHealth have until next week Friday to offer proposals to remedy the CMA's concerns, after which the CMA will have 5 days to consider whether its concerns have been addressed, or to refer the case to phase 2 investigation.
9.55am: Credit Suisse falls, bucking firmer trend in banks
The Footsie is holding firm on hopes for a calmer day in the banking sector following the recent turmoil.
Shares prices of London banks are broadly higher, although off earlier best levels, but shares Credit Suisse Group AG (NYSE:CS) resumed their downward path, down 3.3% to Swiss Franc 1.95.
US shareholders of the embattled Swiss lender filed a class-action lawsuit against the Swiss bank on Thursday, accusing it of defrauding them by hiding issues related to its finances, according to multiple reports citing court papers.
The plaintiffs claim that Credit Suisse failed to reveal "significant" customer outflows and material weaknesses in its internal controls over financial reporting.
AJ Bell investment director Russ Mould said: ““Right now, the market’s fortunes appear to be tied to a prime slice of Zurich real estate which houses what seems to be Europe’s sickliest big bank. A merger with UBS at the behest of the authorities is apparently being resisted by both parties.”
“Whether the efforts on the part of the Swiss government to prop up the bank prove sufficient, whether Wall Street’s injection into troubled regional institution First Republic overnight works, and whether there are any other vulnerable banks are likely to remain key considerations for investors. The dreaded c-word, contagion, certainly remains in the air.”
“The pace and scale of the rate tightening cycle after a decade of virtually zero interest rates was always likely to reveal stresses and strains in the financial system but if central banks row back, they risk leaving inflation even more entrenched and fostering a sense of panic.”
9.24am: British banks picking up deposits from SVB fall-out, Reuters
British banks are seeing a pick-up in enquiries to switch cash between institutions after the collapse of US tech lender Silicon Valley Bank, as contagion fears prompt some depositors to try to figure out the safest harbours for their funds, according to a report on Reuters.
Barclays, one of the country's biggest lenders, said it had seen an increase in enquiries to switch or open business accounts in the past few days. Virgin Money, Britain's sixth largest bank, said in a statement it had also seen "net business deposit inflows in recent days".
SVB's failure has rocked global markets over the past week, with contagion concerns spreading to Swiss lender Credit Suisse, forcing the country's central bank to shore up its liquidity on Thursday in a move that brought some respite.
The British government and the Bank of England have said the country's banking system is safe, sound and well capitalised, while the UK arm of SVB was rescued by Europe's largest bank HSBC on Monday.
In the US, leading banks have joined forces to support First Republic Bank, pumping US$30bn in to the troubled bank.
Banks have enjoyed a strong start on Friday helping push the FTSE 100 up to 7,474.43, up 64.40 points, or 0.87%.
9.00am: FTSE 100 extends gains as a degree optimism returns
The Footsie has extended its gains, now up 72.97, or 0.98%, at 7,483.00.
Analysts at Deutsche Bank led by Jim Reid said: “Some optimism has returned to markets over the last 24 hours, with bank stocks stabilising on both sides of the Atlantic and two-year yields surging back.”
“Even the European Central Bank’s decision to pursue a 50bp hike went without incident, and investors grew in confidence that the Fed would follow up with their own 25bps hike next week, so we’re starting to see a modest change in the mood music.”
“It’s also telling this morning that in Asia, US yields and equity futures are fairly stable.”
However Reid noted: “The concerns haven’t gone away though, as while Credit Suisse saw its equity price increase, its bonds/CDS were generally flat to weaker…”
In London, banks are firmer. Lloyds, Barclays and NatWest are up 2.4%, 1.8% and 1.4%. The European Stoxx 600 banks index is up 1.9% while the CAC 40 in Paris was up 1.1% and the DAX 40 in Frankfurt rose 0.9%.
Rising crude prices supported BP and Shell shares. The oil majors rose 4.2% and 3.5%, placing them top of the FTSE 100’s risers.
BP's shares rose despite, a US federal investigation finding that a BP subsidiary violated workplace safety practices, leading to the deaths of two workers.
The investigation concerns an incident that caused fatal burns to two workers in an Oregon, Ohio refinery's crude unit, operated by BP Products North America. The regulator proposed a fine of US$156,250.
Oil prices were supported by reports that Russian and Saudi Arabian officials met to discuss stabilising the market. Brent crude was trading 0.6% higher at US$75.09/barrel.
8.35am: GSK buoyed by Deutsche upgrade
GSK PLC (LSE:GSK, NYSE:GSK)’s shares jumped 1.4% in early exchanges in London supported by an upgrade by Deutsche Bank.
The German investment bank has put the FTSE 100-listed pharma giant on its ‘buy’ list and increased its price target by 13% to 1,700p.
Analyst Emmanuel Papadakis taken a look at the prospects for the group’s anti-viral drugs in HIV, RSV and hepatitis B and raised sales and EBITDA forecasts as a result.
The broker noted GSK trades at a 4% dividend/9% free cash flow yield, 9x financial year 2023 P/E for +3/+8% sales/EPS compound annual growth rates through 2022-26 which it thinks leaves GSK looking attractive.
“We think GSK is too cheap if there is any semblance of sustainability through FY27/28, something we now think is probable courtesy of long acting injectables in HIV and RSV, with potential upside from bepirovirsen in HepB.”
8.20am:
The FTSE 100 made strong early progress on Friday after gains in US and Asian markets as leading US banks joined forces to support ailing US regional bank First Republic.
At 8.15am London’s lead index was at 7,490.50, up 80.47 points, or 1.09%, while the FTSE 250 advanced to 18,859.82, up 101.24 points, or 0.54%.
Richard Hunter, head of markets at interactive investor, commented “Investors regained some poise after the tribulations of recent days, boosted by further actions to stem the potential of bank sector contagion.”
US banks have joined forces to deposit US$30bn into First Republic Bank in an attempt to bolster its finances and contain the fallout from the collapse of two big lenders in the past week.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit US$5bn into First Republic, a California-based lender.
Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) will put in US$2.5bn each while BNY Mellon (NYSE:BK), PNC Bank, State Street, Truist and US Bank are committing US$1bn apiece as part of the agreement.
The move supported UK bank share prices in early exchanges. Lloyds Banking Group PLC (LSE:LLOY), NatWest Group PLC (LSE:NWG) and HSBC Holdings PLC (LSE:HSBA) all rose by around 1%.
Heading the other way were shares in BT Group PLC (LSE:BT.A) which fell 1.2% after the communications regulator Ofcom put itself on a collision course with the telco’s network operator Openreach by saying it may use its powers to stall a new wholesale fibre offer due for launch on April 1.
In a letter issued via the stock exchange, it said a decision on Openreach’s Equinox 2 plan for telecom providers such as Sky, TalkTalk and Vodafone, due by the end of March, will be delayed by two months.
“To provide certainty and stability for industry, our view is that it would not be appropriate for the offer to launch until we issue our final decision,” Ofcom told the market.
Bodycote impressed the market with its annual results which sent shares 6.5% higher.
The FTSE 250-listed company reported strong growth in annual revenue as profit reflecting good momentum in higher growth markets.
In the 12 months to December 31 the heat treatment and thermal processing services firm posted a 21% increase in revenue to £743.6mln while statutory operating profit increased to £102.0mln from £83.8mln in the previous year.
Basis earnings per share advanced to 38.6p from 31.2p in 2021 while a final dividend of 14.9p, made the total payout for the year 21.3p compared to 20.0p in 2021.
Broker Peel Hunt was impressed: "These results further reinforce our confidence in Bodycote as a must-have Industrial stock, with the mix shift generated by the growing Specialist technology and emerging market content."
GSK PLC (LSE:GSK, NYSE:GSK) was another share on the rise as Deutsche Bank upgraded the pharma giant to ‘buy’ from ‘hold’.
8.00am: Solid numbers from Bodycote
Bodycote PLC reported strong growth in annual revenue as profit reflecting good momentum in higher growth markets.
In the 12 months to December 31 the heat treatment and thermal processing services firm posted a 21% increase in revenue to £743.6mln while statutory operating profit increased to £102.0mln from £83.8mln in the previous year.
Basis earnings per share advanced to 38.6p from 31.2p in 2021 while a final dividend of 14.9p, made the total payout for the year 21.3p compared to 20.0p in 2021.
Broker Peel Hunt was impressed: "These results further reinforce our confidence in Bodycote as a must-have Industrial stock, with the mix shift generated by the growing Specialist technology and emerging market content."
The FTSE 250-listed firm reported revenue growth in Specialist Technologies of 14%, in Emerging Markets of 16% and Civil Aerospace of 19%.
These three areas plus electric vehicles now represent more than half of the group's revenue and 62% of headline operating profit, Bodycote said.
He firm said a key achievement in 2022 has been the recovery of energy cost increases through surcharges and the full recovery of other inflation through permanent price increases.
Chief Executive Stephen Harris said: “While there are near term macroeconomic uncertainties, we expect underlying volume to continue to grow ahead of the background markets, and margins are expected to expand as surcharges moderate.”
“Beyond 2023, we expect robust growth, leading to further margin expansion.”
7.37am: Deadline for bid for John Wood extended
John Wood Group PLC has given Apollo Global Management (NYSE:APO) more time to consider whether it wants to make a firm offer for the firm or not.
The FTSE 250-listed firm made the request to Panel on Takeovers and Mergers after talking to shareholders given full-year results are due on March 28.
The deadline for Apollo to make its move was March 22 but this has been pushed out to April 19. A further extension could be made with the Takeover Panel’s consent.
In a statement the company said results for the financial year 2022 are in line with expectations.
On March 7, John Wood rejected a fourth bid approach from Apollo which valued it at 237p per share, a 7p premium to the third and most recent attempt by Apollo to win over the company.
“The board believes this latest proposal continues to undervalue the group and is therefore minded to reject,” the company said at the time.
On 22 February, John Wood announced it had unanimously rejected three unsolicited proposals from Apollo.
7.00am: FTSE 100 seen higher after US rally
The FTSE 100 is expected to open higher on Friday after US stocks rallied as some of the largest US financial institutions joined forces to support ailing bank, First Republic.
Spread betting companies are calling London’s lead index up by around 53 points.
In the US at the close, all three major indices were in positive territory, with the Nasdaq leading the way at 11,717 points for a 2.5% gain, while the S&P 500 saw a 1.8% recovery to close at 3,960 and the Dow gaining 1.2% at 32,247 points.
Leading banks banded together to deposit US$30 billion into First Republic in an attempt to bolster its finances and contain the fallout from the collapse of two major lenders in the past week.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit US$D5 billion into First Republic, a California-based lender.
Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) will put in US$2.5 billion apiece while BNY Mellon (NYSE:BK), PNC Bank, State Street, Truist and US Bank are depositing US$1 billion each.
"The actions of America's largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most," the banks said in a joint statement on Thursday.
The news supported shares in Asia as well. The Nikkei 225 in Tokyo rose 1.2% and the S&P/ASX 200 in Sydney added 0.5%. In China, the Shanghai Composite was 0.4% higher in late trade, while the Hang Seng in Hong Kong was up 1.1%.
Back in London and with little in the corporate diary attention will switch to EU CPI figures this morning and to Cheltenham this afternoon and the Gold Cup.
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2023-03-17 13:05:00Z
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