Greg Secker – U.K. Market update brought to you by Traders University

UK Stock Market Report 31st August 2010

The FTSE 100 rose +45.72 points or +0.89% on Friday to 5201.56

According to new research out today, the government is set to make almost £30bn from its emergency bailout of British banks. At the time of the bailout, some observers predicted the taxpayer would end up nursing losses of around £850bn. However, the Banker magazine says a combination of recovering profits, rising equity markets and fees charged on loans and guarantees will net the government a massive £30bn profit. British taxpayers are currently breaking even on their 83.2% holding in RBS and 41.3% shareholding in Lloyds Banking Group.

According to an estimate by the Centre for Economics and Business Research if the equity market rises in line with economic growth, the taxpayer is likely to see a paper profit of £19bn within five years. A further £8bn will be due from fees for loans, bond guarantees and the Asset Protection Scheme (APS). Lloyds paid £2.5bn to join the APS, even though it did not ultimately participate. In separate news the British Bankers’ Association said yesterday, the BoE needs to spell out to consumers what its powers to curb lending will mean for products such as mortgages. When it inherits the remit of City regulation from the FSA in 2 years’ time, the BoE will be tasked with macroprudential oversight of the banking system.

Due for release today is the GBP GfK Consumer Confidence, GBP Net Lending to Individuals m/m and the GBP Final Mortgage Approvals.

UK Stock Market Report 27th August 2010

The FTSE 100 rose +46.44 points or +0.91% on Thursday to 5155.85

Yesterday, the CBI revealed that in August, shop price inflation accelerated at its fastest rate since February 1992, raising the ugly trend of persistently rising prices and creating even more of a headache for the BOE. In its August distributive trades survey, the business lobby reported that a net 58% of firms said average selling prices had risen compared to those from a year ago. The looming VAT hike to 20% in January, combined with rising food prices, will only create more inflationary pressures. While the outlook for consumer spending remains uncertain, retailers are at their most positive about the future since May 2004, with a net 22% of firms forecasting that the overall business situation will improve over the next three months. More than half of the retailers surveyed said that the volume of sales rose during the first two weeks of August, compared to just the 18% that experienced a decline. Sub-sectors that they saw the strongest growth included clothing, grocers, and durable household goods, which the CBI said has been helped by better weather at the beginning of the month and the summer holidays.

In the UK economic news, Labour leadership candidate Ed Balls today put his financial wits against the coalition government, by claiming an “economic hurricane” is about to hit the UK in a speech at Bloomberg HQ. Balls is set to tell the chancellor George Osborne he is a “growth denier” who is ignoring signs of a global slowdown.

Due for release today is the Revised GDP q/q, Prelim Business Investment q/q and Index of Services 3m/3m.

UK Stock Market Report 26th August 2010

The FTSE 100 dropped -47.68 points or -0.89% on Wednesday to 5302.87

Minutes have shown that BOE policymakers considered the case for both easing and tightening policy this month, before voting eight to one to keep interest rates at a record low of 0.5%. For the third month running Monetary Policy Committee member Andrew Sentance called for a 25 basis point rate hike. However the majority of the Committee thought it would be best to keep interest rates on hold and maintain the central bank’s £200bn asset purchase scheme due to significant risks on both sides of the inflation outlook. In June, the government’s budget had also cut the growth outlook and the weakening in business and consumer confidence might also weigh on activity.

It is believed by some that the recovery was already gathering momentum and there was a risk that inflation expectations could become de-anchored. During this year inflation has been surprisingly strong, posting a rate of 3.1% in July, which forced BoE Governor Mervyn King to write a public letter of explanation to the government for the third time this year. In other news, yesterday Labour started piling the pressure on the coalition, after the government admitted it was reviewing “middle class” benefits such as child benefit and the winter fuel allowance. A spokesperson for the Department for Work and Pensions (DWP) said the benefits – which are available to everyone are “under review”.

Due for release today is the Retail Sales m/m, Prelim Mortgage Approvals, Public Sector Net Borrowing, Prelim M4 Money Supply m/m and CBI Industrial Order Expectations.

UK Stock Market Report 25th August 2010

On Tuesday the FTSE 100 dropped 1.5% or 78.9 points to 5,156.0.

The Institute of Fiscal Studies (IFS) has claimed George Osborne’s era of austerity will hit the poorest the hardest. In June, he unveiled his emergency Budget, the chancellor insisted those with the “broadest shoulders” would carry the burden of tax hikes and welfare cuts. It also said cuts to housing benefit and higher VAT would hit the poorest in society. Yesterday, the British Bankers’ Association (BBA) said that in July, mortgage lending dropped to a five-month low with just 33,700 home loans approved, taking the annual percentage decline to 18.5 per cent.

UK Stock Market Report 24th August 2010

On Wednesday, the FTSE 100 rose +39.56 points or +0.76% to 5234.84

Britain faces “significant” risk of a fresh slump into recession, a leading policymaker at the BOE admitted yesterday.  Dr Martin Weale, the newest member of the rate-setting Monetary Policy Committee (MPC), said it would be “foolish” to rule out the risk of a double-dip recession. Speaking to The Times, Weale stated that a second economic downturn was a “real risk”. Weale’s warning came as the minutes from a roundtable hosted by the Bank in July showed that leading City economists feared the MPC has underestimated the impact of public spending cuts. With rates at a record low, they said there is little the BoE can do.

Yesterday, economists  rebuffed suggestions by an influential thinktank that interest rates could soar to 8% within two years, describing the claim as “complete rubbish”. Andrew Lilico of the Policy Exchange grabbed headlines by predicting a double-dip recession and then a swift recovery. Lilico said monetary supply would surge in the upturn, fuelling inflation and forcing the BOE to hike its central rate to 8%. The consensus of City analysts see interest rates rising to around 2% by the end of next year and 3.5% by the end of 2012.

Due for release today is the BBA Mortgage Approvals