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Financial Focus: 10th February 2011

UK Government strikes new deal with banks;
Second stock exchange merger on the cards;
Portugal moving closer to bail-out;
Bank of England likely to leave rates unchanged today;
Asian markets and commodities lose ground overnight.

THE UK government secured a commitment from the four ‘Project Merlin’ banks, to lend an extra £10bn to UK SMEs this year, which is an increase of around 15% on what they lent this sector in 2010. The banks also agreed to show some restraint over bonuses this year compared to last.

A SECOND giant stock exchange merger looked likely yesterday as Germany’s Deutsche Börse and multi-country platform NYSE Euronext confirmed they were in advanced talks. The merger would create the world’s largest equities exchange by revenues and profit. The announcement came just a day after news the London and Toronto Stock Exchanges will merge to create the world’s fourth-largest exchange.

PORTUGAL’S COST of borrowing caused concerns again on Wednesday, prompting speculation that Lisbon will ultimately have to turn to bail-out funds to revive its stagnating economy. Hedge funds were selling Portuguese debt after purchasing bonds at a syndication of five-year bonds just 24 hours earlier, and 10-year bond yields jumped to 7.35%, the highest since the euro’s launch in January 1999 and a level regarded as unsustainable for Lisbon’s struggling economy.

THE BANK of England will make its interest rate decision at 12.00 GMT today, and while inflationary pressure has caused some debate, it is widely expected that the benchmark rate will remain unchanged.

ASIAN SHARES fell as commodity stocks retreated in line with lower oil and metals prices. The MSCI Asia Pacific index and Hong Kong’s Hang Seng index both retreated overnight, but China’s Shanghai Composite surged late in the session to put on over 1.5%.

IN EUROPE, the FTSE 100 and FTSE Eurofirst 300 indices slipped slightly yesterday, but are expected to gain today, with investors focusing on earnings from companies that include Rio Tinto and Credit Suisse. Financial spreadbetters expect the FTSE 100 to open 4 to 11 points higher, or up 0.2%, Germany’s DAX to open up 7 to 22 points, or 0.3% higher, and France’s CAC-40 to open 3 to 10points higher, or up 0.2%.

WALL STREET lost ground yesterday, with analysts saying that the downturn was the inevitable result of profit- taking following the bull surge of the last few sessions. US Investors are becoming increasingly cautious, however, as Fed Chairman, Ben Bernanke, suggested economic conditions were still too weak for the central bank to pull back on its QEII stimulus plans.

THE EURO improved against the dollar yesterday, as the Fed made it clear that it does not consider the US economic recovery sufficient to scrap its QEII bond-buying programme.

BRENT CRUDE rose above $102 on Thursday, supported by the ongoing tension in Egypt and tighter North Sea supplies, in contrast to higher crude stockpile in the US, causing the spread between the benchmarks to stay wide.

GOLD WAS down overnight, although it had a good day yesterday when JPMorgan Chase announced it would accept gold as collateral, in effect allowing buyers to monetise it. This saw it regain the $1,350 an ounce level and analysts have turned bullish on the precious metal, now at $1,363 an ounce. INDUSTRIAL METALS saw some profit taking yesterday, with copper dropping 0.9%, but remaining just a few cents short of Monday’s record high.

FTSE 100: 6,052 -0.64%
S&P 500: 1,321 -0.28%
Eurofirst 300: 1,171 -0.41%
Nikkei 225: 10,606 -0.11%
Shanghai Comp: 2,806 +1.59%
Dow: 12,240 +0.06%

$ per €: 1.3694 -0.24%
$ per £: 1.6095 -0.03%
¥ per $: 82.58 +0.28%
¥ per €: 113.02 -0.02%
€ per £: 1.1753 +0.23%

WTI Crude: $86.92 +0.24%
Brent Crude: $101.89 +0.07%
Gold: $1,362 -0.20%
Copper: $4.52 0.00%
Corn: $6.98 -0.04%

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