Initial bounce short lived as FTSE sees more losses

The initial bounce back in UK equities this morning after the sharp losses of the week was short lived, with the heavyweight mining and oil sectors continuing to weigh on the FTSE 100, which subsequently lost around 0.7% by 11am (London time).

Weaker-than-expected earnings from both Rio Tinto and Lloyds Banking Group also weighed on the UK Index, with both stocks falling around 3% on the day. Broader European indices however gained marginally, with the DAX, a heavy faller yesterday, rising 0.2% whilst the French CAC rose four points by mid morning. One could therefore say that it is the results from both Lloyds Banking Group and Rio Tinto that is the main element of difference between the FTSE 100 lagging wider European indices today.

As the morning progressed however, losses started to escalate and soon all major European Indices were back in negative territory.

The sharp falls for the FTSE 100 is a big concern going into tomorrow’s non-farm payrolls figure. The 5500 mark is increasingly being seen as a downside target whereby the UK Index may see support. One however fears that having seen such a strong flight away from risk this week, what the market reaction could be if we get another set of bad non-farm payroll numbers tomorrow. If tomorrow’s figures miss expectations of +85k, this would be the third consecutive month it would have done so.

Traders will keep an eye on the latest Bank of England MPC meeting today, which expected to herald no change on either quantitative easing or interest rates, though surprises cannot be ruled out. The ECB rate decision and press conference with Jean Claude Trichet will also be closely followed, with the ECB President always happy to give the market carefully worded clues as to what the next steps in policy direction could be.

Lloyds Banking Group losses escalates on insurance hit
Lloyds Banking Group shares fell as much as 8% at one point on Thursday after the UK bank reported a £3.25 billion loss for the first half of the year, weighed by compensation to customers who were mis-sold insurance. Losses on exposures to Ireland’s banking crisis also made imprints on the results, with overall losses posted compared to a profit of £1.3 billion a year ago. Investors had earlier appeared satisfied with the results but as the equity session progressed, we saw shares sell off, with shareholders showing caution at the seemingly slowing of pace in the contraction of bad loan losses, which slowed from cuts of 45% to 17% for the same period last year.

Rio Tinto shares fall as earnings miss expectations
Rio Tinto shares fell around 3% on Thursday, tracking similar sector losses whilst investors’ disappointment at missing profit forecasts was tempered by an increase to the share buy back scheme. The miner reported a record first half pre-tax profit of $7.8 billion, a 35% jump, but this fell marginally short of market expectations. The miner also warned that costs, which restricted around $2 billion from Rio’s earnings, and the continued strength of labour unions was a concern. An increase of $2 billion to the existing $5 billion share buyback has helped to temper the downside elements seen by shareholders in Rio Tinto’s half year report.