Market update: Relief rally for lenders, BP higher after Brazil discovery
09:47 , Graeme EvansLloyds Banking Group shares today rallied 8% after the lender pointed to no material change in its £1.2 billion provision for motor finance redress.
Barclays also lifted 2% and mid-cap stock Close Brothers surged by more than 20%, boosted by Friday’s favourable Supreme Court ruling on commission payments.
However, the Financial Conduct Authority later said it intends to explore a compensation scheme that could still cost the industry £9–£18 billion.
Lloyds is reviewing developments but said it believes that if there is any change to its provision “it is unlikely to be material in the context of the group”.
The reassurance helped the company’s widely-held shares to advance 5.9p to 81.6p, which represents the highest level of the year.
Hargreaves Lansdown analyst Matt Britzman said: “Lloyds was one of the most exposed names, and investors should be relatively pleased with this outcome - it’s broadly aligned with existing expectations, helping to alleviate fears that the final bill could be significantly higher.”
Among the other lenders with exposure, Barclays rose 7.8p to 364.45p and Close Brothers gained 80.7p to its highest level in almost a year at 478.5p.
AJ Bell investment director Russ Mould added: “Essentially, while this issue could still cause some damage, it looks unlikely to be a repeat of the PPI scandal which blighted the banking industry in the 2010s.
“The gap between existing provisions by lenders and the sums being talked about by the FCA is substantial but this could partly reflect the fact that the finance arms of the major car manufacturers do not seem, to date, to have made material provisions in this area.”
The FTSE 100 index rose 33.47 points to 9102.05 as global stock market sentiment improved after the shock of Friday’s poor US labour market report.
Wall Street futures are pointing higher amid speculation that the figures have boosted the prospect of a near-term US interest rate cut.
Among the other risers in the FTSE 100, BAE Systems added 30.5p to 1847p after analysts at Jefferies lifted their price target on the defence group to 2060p.
BP shares also rose 6.1p to 404.5p after it announced a "significant" oil and gas discovery at the Bumerangue prospect in the deepwater offshore Brazil.
The oil giant’s tenth find this year comes as it looks to grow its global upstream production to 2.3-2.5 million barrels of oil equivalent a day in 2030. It is due to report second quarter results tomorrow.
Shell drifted half a penny to 2700.5p after a production quota increase by Opec+ members caused the price of Brent Crude to slip back towards $69 a barrel.
In the FTSE 250 index, Clarkson rose 7% or 235p to 3650p after the shipping broker reported stronger-than-expected first half year results.
Lloyds shares up 6% in stronger FTSE 100, Close Brothers up 22%
08:15 , Graeme EvansLloyds Banking Group shares today lifted 6% or 4.3p to 80p, in line with their highest level this year.
The jump comes after the lender said its initial assessment pointed to no material change in its £1.2 billion provision for motor finance redress.
In the FTSE 250, the shares of Close Brothers jumped 22% or 86p to 483.8p.
Hargreaves Lansdown analyst Matt Britzman said: “Friday’s Supreme Court ruling on car finance commissions is a win for UK lenders, bringing some much-needed legal certainty.
“But it's not a home run as the Financial Conduct Authority announced plans to explore a compensation scheme that could cost the industry £9–18 billion.
“Lloyds was one of the most exposed names, and investors should be relatively pleased with this outcome - it’s broadly aligned with existing expectations, helping to alleviate fears that the final bill could be significantly higher.”
The FTSE 100 Index recovered from Friday’s weakness by adding 0.2% or 21.05 points 9089.63, with Barclays among the strongest stocks after a gain of 6.1p to 362.8p.
Bank of England seen cutting interest rates
07:59 , Graeme EvansThe Bank of England’s monetary policy committee (MPC) is widely expected to cut interest rates by 0.25% to 4% on Thursday.
The move comes against a backdrop of weak economic growth and a deteriorating labour market. Earnings growth has also cooled, although the MPC remains wary given that inflation is seen heading towards 4% later this year.
Economists forecast a three-way split on the vote, with two members backing a larger cut of half a percentage point and two other members of the nine-strong MPC preferring no change. The base rate stood at 5.25% last summer.
Deutsche Bank said it does not expect any major surprises around the Bank’s guidance for a “gradual and careful” unwinding of restrictive policy.
It added: “We stick to our call for three more rate cuts: one in November, one in December, and one in February.
“There are rising risks to our view, however. With headline CPI pushing closer to 4% in September, the risk of a 'November' skip, we think, may be on the rise.”
Lloyds sees no material change in motor finance provision
07:13 , Graeme EvansLloyds Banking Group today said it believes any change to its provision for motor finance redress is “unlikely to be material in the context of the group”.
The update followed yesterday’s announcement by the Financial Conduct Authority that it will consult on an industry-wide compensation scheme.
The FCA currently estimates that most individuals will probably receive less than £950 in compensation. The final total cost of any compensation scheme is currently estimated to be between £9 billion and £18 billion, the regulator added.
Lloyds has previously set aside a provision of £1.2 billion in relation to the matter.
It said today: “After initial assessment of the Supreme Court judgment, and pending resolution of the outstanding uncertainties, in particular the FCA redress scheme, the group currently believes that if there is any change to the provision it is unlikely to be material in the context of the group.
“The provision will continue to be reviewed for any further information that becomes available, with an update provided as and when necessary.”
FTSE 100 set to recover, oil price in focus
07:03 , Graeme EvansWall Street markets closed sharply lower on Friday after confidence in the US economy was shaken by July’s weaker-than-expected labour market report.
The S&P 500 index slid 1.6%, the Nasdaq Composite fell 2.2% and the Dow Jones Industrial Average closed 1.2% lower.
The FTSE 100 index fell 0.7% on Friday but is expected to show a recovery in today’s session, with futures pointing to a rise of 0.4%.
Wall Street is also expected to open higher, fuelled by speculation of US interest rate cuts.
Meanwhile, Brent Crude stands at $69.64 a barrel after Opec+ members agreed an increase in production quotas for September.
