RBS lifted as DoJ settlement in sight

By David Madden
CMC Markets

The FTSE 100 is broadly unchanged as traders await today’s update from the Bank of England (BoE).

Volatility is likely to be on the low side in the run up to the announcement at midday. Oil stocks like BP and Royal Dutch Shell have been hit by profit-taking so far this morning and are holding back the UK blue-chip index.

Shares in RBS have jumped today after the bank stated it has provisionally agreed to pay a $4.9 billion fine to the US Department of Justice (DoJ) in relation to the sale of financial instruments before the credit crisis. The size of the fine is far smaller than initial estimates, as two years ago there was chatter the fine could be in excess of $12 billion. The UK government still owns 71% of RBS, and now that the bank is close to reaching a settlement with the DoJ, it could pave the way for Westminster to trim its shareholding. The prospect of the DoJ fine being put to bed, coupled with the government potentially reducing its position in RBS, is boosting investor confidence. The share price has broadly been pushing higher since June 2016, and if the bullish move continues it could retest 304p.

Next announced a stronger-than-expected first quarter and it upped its full-year guidance. The retailer posted a 6% rise in sales, while analysts were only expecting an increase of 2.7%. A strong performance from online sales more than made up for the decline in footfall A bullish outlook is usually welcomed by investors, but it is all the more impressive given the gloomy state of the retail sector. Shares in Next are up 7.2% at 5,640p and if 5,705p is cleared, it could target 6,000p.

BT shares are in the red after the company revealed an aggressive cost-cutting plan. The telecoms company announced plans to cut 13,000 jobs and sell-off non-core buildings, including its London headquarters, in order to meet its dividend policy. Investors like to see companies keeping an eye on costs, but deep cost cutting can project an image of a struggling company. The stock is down 7.5%.

EUR/USD has nudged higher after a pullback in the US dollar and stronger-than-expected Italian industrial output. The latest figures from Italy showed a 1.2% jump in industrial output on a monthly basis, while economists were expecting a rise of 0.4%.

GBP/USD is largely unchanged after the UK revealed mixed manufacturing and industrial production figures. The trade balance deficit widened from £10.2 billion to £12.28 billion.

At 12pm (UK time) the BoE will announce the latest UK interest-rate decision, and rates are expected to remain on hold at 0.5%. The monetary policy committee’s (MPC) voting breakdown will be closely watched, because until recently there was a lot of speculation there would be a rate hike. Out of the nine members of the MPC, traders are expecting two to vote in favour of a rate hike.

We are expecting the Dow Jones to open up 20 points at 24,562 and we are calling the S&P 500 up 4 points at 2,602.

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