03.08.12 Friday Morning

Volatility and volume finally returned to the market in a week of choppy trading stirred by the U.S Federal Reserve and European Central Bank. In advance of the non-farm payroll figure the Federal Reserve announced Wednesday that the economy had lost some momentum but offered no new stimulus measures to combat the lack of demand. However, the jobs figure was resounding showing an estimated 163K new jobs which bolstered Dow futures back up to the 13K threshold.

Markets recovered losses as the week came to a close after steep falls following ECB President Draghi’s failure to reassure investors by not undertaking decisive action to tackle Europe’s debt crisis. 10 year borrowing costs for both Italy and Spain soared after Draghi told a conference in Frankfurt that it will consider buying up debt in the up-coming weeks, not immediately as anticipated. The Euro weakened by nearly 3¢ overnight Thursday as a result. The single currency bounced back Friday when it erased all of the gains made after Draghi declared last week that the bank would do whatever possible to preserve the currency.

Draghi also rejected proposals to give a banking license to the ESM, viewed as the permanent bailout fund, as it would not be legal under the Maastricht treaty. All this and the unanimous decision to keep the key interest rate at 0.75% means the ECB meeting on the 6th September becomes the next point of call for the ECB to strengthen both investor and economists confidence in the stricken Euro area.

Among FTSE blue chips, RBS, which is 82% owned by the Government reported a £1.5 billion pre-tax loss for H1 and earmarked £125 million to cover the cost of recent computer software problems. Aside from the standout figures it is acknowledged that RBS management continue to make progress in terms of balance sheet repair. Standard Chartered saw profits rise by 9%, BNP Paribas saw profits beat expectations whilst UBS missed expectations. However, the LIBOR scandal still looms large over the whole banking sector.

International Airlines Group reported a €253 million half year operating loss but saw total revenue up 9.8% whilst BAE Systems reported underlying EBITDA down 3% and sales down 10%. Xstrata reported total copper production up 7% year-on-year and Reckitt Benckiser announced Q2 revenue of £2.31 billion.

Next week sees earnings reports from Rio Tinto, Aviva, Tui Travel and Sportingbet. All important data comes in the form of manufacturing production and trade balance from the UK and US respectively whilst the BoE Inflation report is released Wednesday.