EU indices post more gains on positive company earnings; BP leads
City Index October 25, 2011 8:45 PM
<p>The FTSE 100 and DAX both gained between 0.25% and 0.9% on Tuesday, whilst the French CAC Index fell marginally, as positive company earnings helped […]</p>
The FTSE 100 and DAX both gained between 0.25% and 0.9% on Tuesday, whilst the French CAC Index fell marginally, as positive company earnings helped to encourage more share buying from investors who by and large remain somewhat quiet today ahead of a potential crucial few days in the European debt crisis.
Make no mistake that many in the market are focusing purely on what could come from Wednesday’s EU Summit in Brussels and the vote in the German Parliament on Angela Merkel’s plans to leverage the EFSF, though the vote is expected to pass.
Whilst certainly it seems we are moving in the right direction with regards to implementing widescale plans to recapitalise Europe’s banks and prevent debt contagion within the eurozone, the truth of the matter is that we are still nowhere near where we need to be in identifying what the fine print of those plans will be, and whether there is a consensus agreement for them within the eurozone. The worry is that there is a weight of expectation towards tomorrow’s EU Summit, and if there is a disappointment, investors may question how much further European officials can kick the debt can down the road and this could threaten the recent gains.
Stellar earnings from oil firms BP and BG Group have been the key lift to the FTSE 100 today after both firms’ results beat market expectations and this is where we can locate much of the UK Index’s gains thus far.
Has BP turned a corner?
BP told the markets today that it had ‘turned a corner’ after reporting a profit, excluding one off items, of $5.14 billion, which beat market expectations of a little over $5 billion, and announced that cash flow would increase by 50% over the next three years. Bob Dudley, BP’s Chief, used these results to highlight to the firms shareholders that the oil giant, which had been under huge pressure following the Gulf of Mexico oil leak last year, had turned a corner, and would now look to return to output and cash flow growth with investments in higher margin yielding operations.
Make no mistake that today’s earnings are solid and clearly an important step in the right direction. Shareholders will no doubt take confidence from the report and whilst to some to say that the firm had turned the corner might seem premature, the share price reaction today tells a tale that shareholders are enthused nonetheless. BP shares rose 4% on the day as a result but remain 30% off pre-oil leak levels.
BG Group earnings helped by LNG operations
BG Group shares also rose strongly, topping the FTSE 100 gainers list after the oil firm beat forecasts to report underlying earnings of $1.02 billion for the third quarter against market consensus of $971 million, with net profit rising 21%. Much of the gains were dictated by a strong performance in the firm’s liquefied natural gas operations (LNG), which helped to offset weaker output in the group’s North Sea rigs. BG shares rose over 4% on the day.
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