21st Oct 2013 09:51
LONDON (Alliance News) - UK equity indices are modestly higher at mid-morning Monday, as investors put worries about the US debt ceiling behind them for now and await the release of major US data that was delayed by the shutdown.
Asian markets have closed higher, including the Nikkei, up 0.9%, despite Japan posting a merchandise trade deficit of JPY932.149 billion in September, sliding into the red for the 14th consecutive month. The headline figure missed forecasts for a shortfall of JPY918.6 billion following the revised deficit of JPY962.84 billion.
Mid-morning Monday, the FTSE 100 is up 0.2% at 6,636.65, the FTSE is up 0.5% at 15,472.25, and the AIM All-Share is up 0.2% at 801.02.
Having made fresh 2013 highs last week, the FTSE 250 and the AIM All-Share have pushed to new highs once again in early trade as investors continue to take advantage of the cheap money provided by global quantitative easing programs. The FTSE 100 is heading for its eighth consecutive day of gains.
The equity market highs are starting to look unrealistic, says Spreadex trader Shavaz Dhalla. "There is an argument that as money is cheap at the moment, the surge in equities has occurred because of this, instead of global economic fundamentals. One could argue that it may simply be a matter of time before traders observe a sharp downside correction", says Dhalla.
RBS leads UK blue chip fallers Monday, down 4.8% following an article in the Telegraph newspaper Monday morning saying the group will be broken up by the UK government into a "good bank" and a "bad bank", with the go-ahead to be given within the next few weeks.
Chancellor Gerorge Osborne told the paper that the future of RBS was his "priority for the next two or three weeks", and there was no chance the bank will be left in its current form. "We are now looking actively at a retail offer for the next tranche of Lloyds shares," he said. "With RBS we are not, at the moment, close to the stage of being able to sell RBS shares."
Also having an effect on RBS is the news that the US Federal Housing Finance Agency is seeking a penalty of more than USD6 billion from Bank of America Corp. for mis-selling mortgage-backed securities to government-backed mortgage companies, Fannie Mae and Freddie Mac. Royal Bank of Scotland Group PLC has a USD30 billion notional exposure to the mis-selling probe, just a little less than JPMorgan Chase, which was fined USD4 billion, and faces a similar multibillion-dollar fine. This, along with the stock's recent strong performance, is "the more opaque issue" affecting the RBS share price, says Shore Capital banking analyst Gary Greenwood.
UK energy prices remain in focus Monday as Npower become the latest of the "big six" energy utilities to raise prices, announcing a hike of 10.4%. Meanwhile, the other political hot potato, Royal Mail, is up another 3%. The 501-year-old institution, which floated less than two weeks ago at 330.00p, made a morning high Monday of 532.50p.
House prices in the UK rebounded in October, after two consecutive declines, as prices in London hit a new record high after summer recess, a survey by Rightmove revealed. Average property asking prices in the UK rose 2.8% month-on-month to GBP252,418 in October as prices returned to a growth trend with the onset of autumn. Prices fell 1.5% in September and 1.8% in August. Year-on-year, prices increased 3.8% in October following a 4.5% gain in September. Asking prices in London rose at an "unsustainable" pace of 10.2% or by GBP50,484 on a monthly basis to a new record high of GBP544,232, Rightmove said.
The forex market is quiet, with the pound and the euro both close to flat against the dollar as traders wait for direction from economic data scheduled later in the week. Currently the pound buys USD1.6175 and the euro USD1.3675.
On Tuesday the much-missed September reading of the US non-farm employment report will be released, after being delayed by the 16-day government shutdown. The number will give the first major indication since the shutdown of which way the US Federal Reserve may lean on the decision whether to beginning to taper the quantitative easing that is currently seen to be supporting the equity market highs.
On Wednesday the Bank of England will release the minutes of its last policy meeting. The expectation is that there were no votes in favour of any policy change, but as always the minutes will be closely watched for insight.
US existing home sales data, at 1500BST is the only release scheduled for the afternoon.
By Jon Darby; [email protected]; @jondarby100
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