European Indices struggle – Sainsbury’s earnings disappoint, Portuguese vote eyed
City Index March 23, 2011 2:49 PM
<p>European Indices jostled between negative and positive territory on Wednesday as weakness in heavyweight banking stocks and insurers lagged on the session, whilst a weaker […]</p>
European Indices jostled between negative and positive territory on Wednesday as weakness in heavyweight banking stocks and insurers lagged on the session, whilst a weaker than expected reading of US new home sales, which fell 16.9%, also weighed on sentiment. It was the weaker than expected earnings from Sainsbury’s however that took the headlines, with the UK retailer’s shares falling some 6% on the day. A crucial vote in the Portuguese parliament on Prime Minister Socrates’ austerity package also kept traders nervous into the close.
The trading day had started positively, with the FTSE 100 charging higher to touch the 5800 level once again, with traders bulled by the minutes from the last Bank of England Policy Meeting which showed no additional members had called for a rate increase. The indications from the minutes was that the committee had not moved any closer to calling for a rate hike, despite UK inflation double that of the Banks target of 2%, and whilst much of the market is expecting rate hikes to come before the end of the year, the minutes gave traders an excuse to buy into stocks, albeit temporarily. The pound sterling, which had earlier struggled to break consistently through the $1.64 level against the US Dollar, fell in reaction to the minutes however, as traders closed positions they had built up over the last few days on speculation that today’s minutes could indicate a sway in the committee to a rate hike soon.
However as the session progressed, traders sold out of banking stocks with a vote in the Portuguese parliament to come later today that could throw the country into a crisis of instability. Portugal’s Prime Minister Jose Socrates has threatened to resign should the parliament vote against his austerity package. If the vote fails to support the austerity plan, the fear is that Portugal will require and Ireland and Greek style bailout, and naturally the costs of insuring Portugal’s five year debt has hit a new two month high on the back of these fears. The vote is expected later on Wednesday.
It is the mining sector that has kept European Indices afloat today, with the sector in London gaining by some 1.8% on the day, with traders bulled by rising commodity prices. The fact that Copper prices have rallied over 2% today has been a particularly helpful for mining companies, increasing near term share demand. Xstrata has been the outperforming miner of the day, with shares rallying 2.7%.
Sainsbury shares slump as sales growth slows
Sainsbury’s shares however slumped today after the supermarket chain reported that its sales growth for the quarter had slowed quicker than expected, growing at just 1%. The market had been looking for sales to grow at 2.4% and the results are particularly disappointing considering sales grew at 3.6% the previous quarter, marking a rapid deterioration in growth and heightening fears for a consumer slowdown.
Budget was largely a non event
Today’s budget reading was largely a non event, with many of the details causing little of a surprise to traders. One aspect of note from Chancellor George Osbourne however was the fact that the government will use funds generated from the bank levy to create a £250m commitment to first time buyers. This helped to rally the share prices of house builders in reaction to the news. But as a whole, budget reading left very few ripples in today’s equity waters.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.