FTSE Lower Under Pressure From RBS and Carnival

The FTSE headed into the close 0.5% lower, pulling back from its recent 2 week high, weighed down by RBS following the Government’s share sale, a negative note on Carnival and a slightly stronger pound. 

The government selling a 7.7% stake of its holding of RBS sent the share price firmly lower. The government, which is not in the business of running banks has been itching to sell out of the bank it bailed out in the financial crisis. 

A window of opportunity presented itself as Italian and Spanish political uncertainty has eased and before a potential Brexit headache later this month if the government can’t find a solution to the Irish border issue prior to the EU summit.

Whilst selling out at 271p, significantly below the price it brought in at 502p, goes well against the trading mantra “buy low sell high”, there is a lot more to consider here. 

The RBS of today is vastly different to the RBS that the government bailed out in the financial crisis, it is slimmed down with significantly fewer assets and focuses solely on UK domestic banking – to assume that the price of the shares in this RBS bank would go back up to 502p within a reasonable timeframe is wishful thinking. RBS was trading over 4% lower.

Carnival sinks

Carnival sunk to the bottom of the FTSE after a downbeat note from Morgan Stanley highlighting the difficulties that cruise industry face towards the fourth quarter. 

The double whammy of the recent rally in oil prices, plus the stronger dollar in addition to hurricane threats and a risk of over capacity led the investment bank to slash their earnings forecast for the firm. 

Investors have been quick to jump ship following the depressed outlook on the sector and shares are currently down 6%.

Hat-trick of forecast beating pmi’s

The pound is clawing back yesterday’s losses following another better than forecast pmi reading. 

Service Sector activity increased sharply from 52.8 in April to 54 in May, ahead of expectations of 53. 

This makes it a hattrick of solid pmi data, but unlike the construction and manufacturing sectors, where the numbers presented noticeable weakness below the surface, the service sector rebounded not just on snow related catch up, but also a sustained growth in new work. 

Given this is the dominant sector in the UK economy, the figures support the BoE’s view that the UK economy will pick up from the slowdown in the first quarter.

The pound pushed higher on the release, buoyed by a hattrick of better than expected PMI’s, reaching a peak of $1.3392. However, it has been unable to maintain these levels, weighed down by the strength of the mighty dollar following better than forecast US data.

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