Tuesday, May 01, 2012

--Financial markets quiet yet cautious; Spain still a headache

--FTSE trades in narrow range as does euro versus the dollar

--Lloyds Banking Group soars but BP slides after earnings 


 
   By Andrea Tryphonides 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--Financial markets were cautious in light trade, with Spain still proving to be a worry to investors despite the May Day holiday Tuesday, while corporate earnings proved to be a mixed bag.

London's FTSE 100--which was the only one of Europe's main equity markets open Tuesday--ticked between small losses and gains as mixed earnings reports muddied the picture.

At 0740 GMT, London's FTSE 100 was up 0.2% at 5749.93 with Lloyds Banking Group leading the upside. The bank stock was up 1.5% after the release of its first-quarter results. It eked out a GBP2 million net profit in the quarter helped by lower impairment charges and falling costs. Analysts praised the bank's progress on its balance sheet. However, the shares have dropped over 46% over the last 12 months, noted Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

"For investors, these conflicting factors have resulted in a psychological stalemate, with the consensus coming in at a hold, albeit a strong one. Much still needs to be done to break out of this neutral range, and for the moment the general view remains that there is better value to be found elsewhere," he said.

On the downside, oil heavyweight BP dropped 2.7%. BP posted a 12.8% fall in adjusted net profit for the first quarter. The company said its clean replacement cost profit dropped 12.8% for the period to $4.80 billion, compared with $5.50 billion for the first quarter of 2011. This was well below expectations of $5.10 billion in a Dow Jones Newswires poll of 10 analysts.

Elsewhere, the cost of insuring European corporate and sovereign debt against default was flat to slightly lower Tuesday and the euro was expected to remain rangebound against the dollar as activity is expected to be subdued due to the holiday.

Nevertheless, sovereign debt concerns have not disappeared and Spain's problems have not lightened. Indeed, governments across Europe were bracing themselves for Labor Day marches against austerity measures. These protests come ahead of elections in France and Greece this weekend and after Spain confirmed Monday that its economy contracted for the second consecutive quarter.

Standard & Poor's cut the ratings of several of Spain's banks and later Monday, smaller credit-rating company Egan-Jones cut its view on Spain to junk status. The ratings firm now rates Spain at double-B-plus. Egan-Jones, which is smaller than the world's three big ratings firms S&P, Moody's Investors Service and Fitch Ratings, is the first to consider Spanish debt junk. Thursday, S&P cut its rating on Spain to triple-B-plus.

Commenting on the future for Spain, BNP Paribas economist Ricardo Santos said, "The risks stemming from growth and the doubts surrounding the Spanish housing market add to doubts on Spanish banks.

"We believe that Spain can avoid a full Troika-style program. However, because of its funding constraints, Spain cannot issue enough sovereign debt to recapitalize the banking system to the point where market concerns will be assuaged."

Asian stock markets were mixed Tuesday in cautious, holiday-thinned trade.

Renewed strength in the Japanese yen hurt Tokyo equities, but shares in Sydney drew some support from China's improved manufacturing indicator. In addition, Australia's S&P/ASX 200 hit a fresh 9-month high of 4448.50 after the country's central bank cut official cash rates by 50 basis points instead of the 25 basis points most economists were expecting.

Australia's S&P/ASX 200 rose 0.7% and New Zealand's NZX-50 gained 0.6%. Japan's Nikkei Stock Average was 1.8% lower.

Trading volumes dwindled in Asia as markets in China, Hong Kong, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand, Vietnam and India were shut for holidays.

Monday in New York, the U.S. dollar slid below the key Y80 level for the first time since Feb. 24 as investors retreated to the safe-haven currency after Spain's economy shrank for a second straight quarter, while the U.S. reported weak economic data.

At 0745 GMT, the greenback was at Y79.71 against the Japanese yen from Y79.82 late Monday in New York. The euro was at $1.3259 against the dollar from $1.3239.

Spot gold was at $1,662.50 per troy ounce, down $3.70 from its New York settlement on Monday. June Nymex crude oil futures were $0.13 lower at $104.74 per barrel while June Brent oil futures were down $0.10 at $119.37.

There are few items on the economic agenda Tuesday, but the U.K.'s purchasing managers index for April is due at 0830 GMT.

-By Andrea Tryphonides, Dow Jones Newswires; +44-20-7842-9281; andrea.tryphonides@dowjones.com

(END) Dow Jones Newswires

May 01, 2012 04:00 ET (08:00 GMT)