Banks lifted after Basel Banking Rules Loosened FTSE loses ground

UK banks led the charge in early morning trading after central bankers came to an agreement to loosen the Basel banking rules on liquidity provisions whilst the FTSE 100 lost a little ground as investors banked profits in mining shares after a strong run last week.

The FTSE 100 was trading with a loss of 14pts to 6075, tracking broadly similar moves in German and French stock indices.

Indeed, after a strong run to trading last week, which saw the FTSE 100 break above the 6000 level, many traders are tempted into banking some of their profits. The miners have taken the focus of profit taking, with the sector losing 0.7% early on. Many traders are watching how the FTSE will trade as it starts its fifth attempt at breaking above the 6100 resistance level in the last 11 months. A failure to break above the 6100 level could enforce a price correction for blue chip UK equities.

Basel rules on bank liquidity please

The agreement made by central bankers to loosen the Basel rules on bank liquidity has been met warmly by traders in London, with investors buying into UK banks Barclays and Lloyds as a result. Both banks’ share prices topped the UK gainers list after banks were given an extra four years to meet liquidity rules and were allowed to incorporate a broader spectrum of assets within their liquidity criteria such as bonds. This is generally viewed as a much less aggressive form of liquidity benchmarks for banks to meet, which could ultimately leave them needing to raise much less amounts of capital, hence the positive market reaction today.

There is no significant economic data out today but investors will watch the Bank of England and European Central Bank announcements on Thursday, alongside Chinese inflationary figures on Friday.

Morrisons numbers broadly in line

UK retailers take the focus this week, with Morrisons the first of the three big UK supermarkets to report their Christmas sales results. Morrisons saw like for like sales fall 2.5%, marking a quicker pace of declines, having seen sales fall 2.1% in the third quarter. The company maintained that despite the tough Christmas sales period, they would broadly meet full year profit expectations.

The Morrisons numbers were not as bad as the market had feared and there was no profit warning for the full year, and so with shares selling off late last week as investors feared the worst, shares have seen some muted support today. Despite this, the numbers reported by Morrisons remains extremely troubling. Their lack of significant online sales and smaller convenience stores is losing them market share and continues to trouble shareholders. The company has recently signed up Ant and Dec to lead a new brand promotion.

Later in the week we will see how Tesco and Sainsbury’s performed and their numbers may darken the performance of Morrisons for the same period. Sainsbury’s reports on Wednesday whilst Tesco reports their sales numbers on Thursday.