Market update - 23 July

The FTSE 100 was up 68 points at 5432.1 at 11:57 am this morning. The banking sector was strongest and HBOS was the subject of a round of bid rumours – Britain’s largest mortgage lender advanced by more than 10 per cent or 26.75p to 287.75p as traders citied talk that BBVA, the Spanish banking group, was mulling an offer. The talk comes only days after Santander, another Spanish bank, approached Alliance & Leicester, which was up 7.5p at 335p this morning. The rumours bore few details, suggesting only that BBVA may be raising money to mount a bid in the coming weeks.

In the wider sector, the feeling the worst of the credit-crunch turmoil was over lifted investor sentiment. The activity in London mirrored an overnight rally in New York, where the Dow Jones gained 135.2 points to 11602.5, driven mostly by the financial sector.

Back in London this morning, the Royal Bank of Scotland gained 9.05 per cent or 18p to 217p, Barclays advanced by 27.25p to 342p and Lloyds TSB was up 18.25p at 338.25p.

Moving up…

The oil price retreated further off recent highs, cheering Carnival, the cruise operator which gained 100p to 1908p, and British Airways, which climbed by 7p to 253.25p.

Sentiment was bolstered by a new report from Lehman Brothers, whose analysts now expect oil prices to decline to $90 per barrel by the first quarter of 2009.

Friends Provident climbed to 87.8p, up 7.7p, and Standard Life gained 7.75p to 224.75p after Goldman Sachs said it was placing the two insurers its “conviction buy” list.

“On an embedded value basis UK life stocks appear cheap, and have done so for some time. However, EV is based on long-term normalized assumptions, hardly characteristic of the current financial climate. In this report we put greater emphasis on tangible book values, where clarity is greatest, and from which dividends are paid and business is financed,” said the broker, adding:

“We find [Standard Life] to have the most attractive risk reward profile of the companies analysed. At 1.7 [times] tangible book value, it generates the most capital from existing business, and is an efficient writer of new business. It has ample excess capital and low asset risk in our view.

“We have removed the Not Rated designation from Friends Provident. We believe it offers superior value, with the potential for tangible book value growth through disposals.”

Goldman also moved Aviva, which was up 17p at 527.5p, to “buy” from “neutral”.

Also on the upside, talk of counter bid from Macquarie, the Australian bank, kept Minerva firm. The FTSE-250 listed property group, up 1p to 128p, received a 160p per share approach from Limitless, a unit of the Dubai sovereign wealth fund, earlier this week.

Moving down...

Weaker commodities prices bore on the resource stocks and Ferrexpo was down 9p at 266.5p. Lonmin came off the rally path, down 72p at 2590p, despite fresh takeover rumours – following last nights talk of a possible approach from Xstrata, up 26p at 3449p, or the Eurasian Natural Resources Corporation, down 10p at 1038p, traders cited speculation that Anglo American, down 51p at 2774p this morning, may attempt to acquire the platinum producer.

In the oil & gas sector, Cairn Energy was down 27p at 2717p and Tullow Oil lost 7p to 773p.