Despite claims that he’s no longer ‘bank bashing’, Chancellor of the Exchequer George Osborne delivered a Budget on Wednesday that not only excluded banks from the effects of a corporate tax rate cut but also added oil producers to the list of companies targets by his first March Budget. Banks’ shares were under pressure following the announcement but oil majors shrugged off news of a North Sea Oil tax regime change.
With investor seemingly glad to have some major domestic news to focus on for once, the UK benchmark market ticked up in the mid-week session, in spite of increasing fears of nuclear contamination in Japan and the apparently limited impact of international intervention in Libya.
The FTSE 100 index closed up 27 points or 0.5% at 5,790, while the FTSE 250 index was virtually unchanged, having shed less then two points to settle at 11,440.
More details of today’s Budget can be read in A Big Business-Friendly Budget, Except Banks & Oils, but the main surprise was a 1p reduction in fuel duty as of today rather than a 5p increase due next week, and an increase in North Sea Oil extraction duty. Osborne also cut main corporation tax by double what he previously planned—2% rather than 1%—though his bank levy will be increased to ensure a net neutral effect for the banks.
Rather than showing any weakness on the oil tax news, UK-listed oil majors instead took direction not only from the corporation tax cut but also from the price of oil, which continued its upward climb, hitting $105 a barrel at last check, as concerns over the continuing conflict in Libya and elsewhere in the Middle East and North Africa fuelled supply concerns. Essar Energy (ESSR), Cairn Energy (CNE), Petrofac (PFC), BP (BP.) and Royal Dutch Shell (RDSB) closed 4.5%, 3.0%, 1.7%, 1.4% and 0.6% higher, respectively. Mid-cap player Enquest (ENQ), however, which focuses on output from the North Sea, plunged 12.5%.
Among other Budget-fuelled stock, housebuilders Redrow (RDW), Barratt Development (BDEV) and Taylor Wimpey (TW.) enjoyed gains of 2.5%-3.3% on the FTSE 250 after Osborne said he would spend some of the proceeds of this year’s bank levy on funding a commitment to first-time buyers.
Returning to the top tier, commodity producers, namely miners, dominated the leaderboard. Kazakhmys (KAZ), Xstrata (XTA), Eurasian Natural Resources (ENRC) made up three of the top four blue-chip risers, adding between 3.5% and 4.5% apiece.
Elsewhere, banks were less resilient and Lloyds Banking Group (LLOY), Royal Bank of Scotland (RBS), Barclays (BARC) and Standard Chartered (STAN) saw their share prices shed 0.4%-1.5%.
But with several top-tier companies trading ex-dividend rights and Sainsbury (SBRY) results hitting a sour note, banks were not the worst off by a long shot. Sainsbury shares dropped 5.4% after the supermarkets group’s fourth quarter results showed near-term headwinds remain prevalent. Though sales increased over the fourth quarter, like-for-like sales growth slowed to just 1% quarter-on-quarter and the report as a whole represented the company’s worst figures in years. Morningstar analyst Philip Gorham believes the market has slightly overshot Sainsbury’s intrinsic value and sees better value elsewhere among the European supermarkets.
