Market Report: ECB rule change is good news for RBS

Frankfurt rarely issues diktats that are helpful to the UK’s banks, but yesterday a rule change meant that taxpayer-backed Royal Bank of Scotland was the order of the day for investors. News of a change to the way the European Central Bank views loans on banks’ balance sheets helped RBS up nearly 4 per cent.

The Frankfurt-based ECB issued an expanded list of the types of collateral that are eligible for use in its refinancing operations. This facility is used by banks to get access to funds. It will now include more asset-backed securities, which is good news for many European banks – including RBS.

Asset-backed securities are groups of loans often made against property, small business or other risky investments that are bundled together and sold off. The practice has been blamed for creating the beginning of the financial crisis and many banks were crippled by their exposure to these loans and their derivatives.

But the ECB is now to lower the required credit rating for asset-backed securities and there are hopes that this will boost lending to small businesses.

The news pushed RBS up 12.8p to 334.4p, which added to its July rally – the bank has jumped more than 16 per cent since the start of the month.

Traders were calmed by Wednesday’s comments from the US Federal Reserve chairman, Ben Bernanke, that he would not be tapering quantitative easing any time soon. Yesterday’s update of improved US jobless claims data was the catalyst for another positive day on the benchmark index and the FTSE 100 stepped up 62.43 points to 6,634.36.

Despite good weather in the UK, holidaymakers were still planning to get away this summer and easyJet predicted its busiest summer yet, with 9 million passengers due to fly out of the UK on the budget airline between mid-July and the end of September. JP Morgan’s Jamie Baker was convinced and changed his rating from sell to buy, giving easyJet a 1,540p price target, and the shares soared 56p to 1,406p.

There is no love lost between the advertising supremos Maurice Levy and Sir Martin Sorrell, but strong results from Mr Levy’s Publicis gave investors a reason to warm to Sir Martin’s WPP, which jumped 42p to 1,210p.

Mining stocks lagged the rest of the market after BHP Billiton’s rating was cut and Anglo American posted mixed production numbers. BHP still managed to advance 13p to 1,881p and Anglo added 20.5p to 1,377.5p.

The retailer Marks & Spencer made significant gains for a second day. Retailers have been in favour with traders after signs that the summer weather is boosting sales on the high street. There were also vague rumours of renewed bid interest in the group. The shares climbed 8.8p to 482.4p.

Top of the table was the London Stock Exchange, reporting a 39 per cent rise in first-quarter sales, and it hit new, five-year highs with a 110p gain to 1,590p.

The US computer giants IBM and Intel reported falls in profit, as shoppers moved away from PC-based systems to mobile devices. But it was good news for the smartphone microchip-designer Arm Holdings, whose market Intel has been trying to enter. Arm advanced 13p to 921p.  But the software group Sage declined 5p to 357.1p.

On the mid-tier index, analysts feared that the hedge fund Man Group is on track to suffer its eighth-consecutive quarter of net outflows and it lost 1.45p to 87.7p.

The plant and tool-hire firm Speedy Hire said sales sank 2.6 per cent in the quarter to July and it fell 2.75p to 59p.

The closure or sale of some print magazines could be on the agenda for the games and technology publisher Future after it warned it would miss profits and it was 2p weaker at 13.75p.

HR Owen, which sells luxury cars such as Ferraris, urged shareholders to reject a £32m offer from a company owned by Vincent Tan, owner of Cardiff City football club, and it drove up 11p to 141.5p.

On Aim, the potash miner Sirius Minerals asked the North York Moors National Park Authority to defer determination of a mining application to give it time to tackle environmental problems and it rose 1p to 22.5p.

Conroy Gold & Natural Resources found zinc at its gold licence areas in Ireland and was 0.175p brighter at 1.85p.

The drug discovery group Summit won £0.76m in funding from an Australian charity and today will meet to ratify a £4.5m placing of shares. It advanced 0.125p to 4.6p.

Buy

Barclays

Snap up shares in Barclays, Investec suggests. Its analyst Ian Gordon has issued four notes on the bank in as many days, and yesterday declared “no other bank has done as much to support lending to the British people as Barclays”. He thinks the good mortgage lending figures demonstrate how much Barclays has been involved in this lending market.  He reckons that it is time to buy  the shares, which are 317.05p, and gives them a 345p price target.

Sell

Kazakhmys

Flog shares in miner Kazakhmys, Nomura recommends. The broker says that over the last six to 12 months “earnings from ENRC have been a valuation buffer” for Kazakhmys, which owns a stake in its fellow miner, and this “masked the more severe deterioration in profitability from its standalone businesses”. Nomura reduced its price target for the shares, which are at 261.1p, to 130p.

Hold

Hilton Food Group

Hang on to shares in Hilton Food Group, Peel Hunt proposes. The broker said its half-year results were in line with full-year expectations, and increased its target price to 350p for shares that are at 387p, but retain their hold rating as the horsemeat scandal hit it in the first quarter.