Individual banks buck dreary session as volumes stay thin

LONDON equities ended flat yesterday as better-than-expected US services and private sector employment figures offset weaker retail shares that fell on concerns of a decline in consumer demand.

The choppy session witnessed weaker banks, with the STOXX Europe 600 banking index down 0.4 per cent. Standard Chartered fell 5.2 per cent despite forecast-beating earnings, as analysts said the beat was mainly due to lower bad debts and further upside was limited due to its premium rating.

The wider market rallied from lows on the back of US services data to close little changed. The FTSE 100 closed down 0.2 per cent, or 10.32 points, at 5,386.16.

“Markets are struggling to understand what’s happening and whether to put emphasis on the good part of the news or on the bad part, and this explains the nervousness,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

The market got some support from macro-economic numbers, with figures showing US private sector employment rose slightly more than expected in July, easing some concerns about labour market weakness ahead of a key government jobs report later this week.

A report by ADP Employer Services showed US private employers added 42,000 jobs in July, while the Euro zone’s dominant service sector picked up speed last month, allaying fears of a double dip recession.

“We are trying again to move on the upside. But don’t expect a too aggressive rally as you have only very selective buying in different shares,” said Achim Matzke, strategist at Commerzbank in Frankfurt.

“The technical picture looks positive.”

The Euro STOXX 50, the Euro zone’s blue-chip index, rose 0.2 per cent to 2,825.08 points to stay above its 200-day moving average and the 61.8 perc ent Fibonacci retracement of the index’s fall from an April high to a May low, generally a bullish signal. The index pierced the two key resistance levels on Monday.

The banking sector as a whole was down but some individual banks advanced. Part-nationalised Lloyds, Britain’s biggest retail bank, was up 3.6 percent as it beat forecasts to swing to its first profit in two years and said it expected to deliver a strong medium-term performance.

Société Générale was up 0.7 per cent as it beat forecasts with an almost fourfold leap in second-quarter net profit, but the French bank warned that the economic recovery was still fragile.

But retailers lost ground after Next, Britain's second-largest fashion chain, said it expected a fall in first-half underlying sales to deepen in the second half.

Next slumped 7.7 per cent, while Carpetright, Britain’s biggest floor coverings chain, was down 3.4 per cent as it reported a drop in underlying sales and said it was planning for spending to stay subdued for the rest of 2010.

“The market is quite vulnerable and volatile, with low volumes, as there is a lack of ‘by and hold’ investors. Insurers remain on the sidelines, while institutional and retail investors are still jittery,” said Frederic Buzare, global head of equity management at Dexia Asset Management.

“So it’s a market of index trackers and hedge funds who play short-term moves, hence the wild swings.”

French utility EDF featured among the top gainers, up 5.5 per cent, news on higher proposed tariffs.