There were few causes for celebration yesterday as traders suffered another day of pain, with miners and banks leading the way down.
Global markets were tumbling on heightened fears about rising inflation and interest rates, and dealers in London were not about to be left out on what one called "capitulation day."
By the close of play, the FTSE 100 had lost 101.3 points to 5,519.6. This is the lowest level since December 15 when it hit 5,495.3. The initial spur was a near-100 point slide in Wall Street after London closed on Monday, with the theme taken up by Asian markets as the Nikkei suffered its biggest one-day points fall since 9/11.
Everyone knew it was likely to be a nervous session in London as a result, and so it proved. Investors have become increasingly concerned that rising inflation around the world will lead to higher interest rates, which in turn will hit corporate profits. Yesterday came evidence to back up that worry, with UK inflation up from 2% in April to 2.2% in May - above the Bank of England's target. In a speech on Monday, Mervyn King, the Bank governor, indicated that he was worried about the inflationary threat, particularly from import prices.
US producer prices figures were mixed but less troubling than expected and the Dow Jones Industrial Average had recovered an early fall by the time London closed yesterday. The main focus though will be on US inflation figures today. Recent pronouncements from the US Federal Reserve chairman, Ben Bernanke, have left markets uncertain about how far he feels interest rates will need to rise to combat inflation.
Henk Potts, of Barclays Stockbrokers, said: "Central bankers have to be aggressive to combat inflation but the uncertainty is how aggressive they'll be. The big number is the US inflation figure. If there is a big rise, then we'll see further downward pressure in the short term as investors try to work out what that means for US rates and global growth."
Miners were again in the spotlight as metals prices, which had led the way when markets were rising, continued to lose ground. Copper fell to a seven-week low and gold fell almost $40. Kazakhmys led the FTSE 100 fallers, down 72.5p to 948.5p while the copper miner Antofagasta was 103p lower at £18.08 and BHP Billiton dropped 45.5p to 910p.
A trading statement from Royal Bank of Scotland did little for the shares, down 52p to £17.20. Alliance & Leicester meanwhile fell 64p to £10.90 as Crédit Agricole, tipped as a bidder for the bank, launched a bid for the Greek bank Emporiki. Investors initially thought this put the French group out of the running for A&L, although later in the day it said it was still assessing the British bank.
Merrill Lynch downgraded its profit estimates for A&L after the bank's update on Monday, but stuck to a £11.71 price target, including a takeover premium. Fellow broker Dresdner Kleinwort Wasserstein raised its rating from reduce to hold.
Brewer SAB Miller lost 30p to 921p despite an upbeat assessment from Merrill Lynch. The broker said SAB's 20% decline since April was an over-reaction, and it put a price target of £11.60 on the shares.
Boots added 1.5p to 729p as JP Morgan raised its price target from 800p to 850p and said it was increasingly confident that its forecast of £140m in cost savings from the merger with drugs wholesaler Alliance Unichem was conservative. Seymour Pierce was less positive after a meeting with the company, saying the share price was at the top of its range and expressing concern about the longer-term impact of cut-price supermarket drug sales.
The jeweller Signet fell 3.75p to 95p as the market reacted to Monday's after-hours announcement that merger talks with its US rival Zale Corp had been called off. But broker Seymour Pierce confirmed its outperform rating on the shares, saying this was always based on fundamentals rather than bid speculation. It said any weakness in the price was an opportunity to pick up stock.
There were a few positive signs around. Building materials group Wolseley was the biggest riser, up 11p to £11.29 after Deutsche Bank put a £15.30 target on the shares. A Barclays upgrade on AstraZeneca had a similar effect on the drugs giant, up 17p to £29.42.
Takeover situations also provided a little support, with the airport operator BAA ahead 1p to 929p and Cambridge Antibody, the drug firm that is the subject of a recommended cash bid from AstraZeneca, also rising 1p to £13.07½.
Property group Savills was the biggest riser in the FTSE 250, up 10p to 537.5p after it bought Irish business Hamilton Osborne King.
Among smaller companies, education group Nord Anglia fell 4p to 138p despite talk that active investor Bryan Myerson is thought to have been adding to his stake, and now holding around 15%. Software group Macro 4 lost 12.5p to 209p as traders said there was an overhang of stock up for sale, while troubled iSoft dropped another 1.75p to 55.25p on reports rival Cerner could replace it on some key contracts. Lastly, oil exploration tiddler Ithaca Energy added 1.5p to 100p after a positive update.
Alpine Peaks
Ten Alps, the TV production group where Bob Geldof owns 7.1%, brightened up investors' moods with more-than-doubled full-year profits of £2.66m. Not only does the company - whose output includes Teachers TV - seem to be firing on all cylinders, it also unveiled three new developments. It has won two new commissions, from Channel 4 and Animal Planet, and signed a DVD distribution deal with 2 Entertain. Perhaps most significantly it plans to launch public.tv, a portal bringing together its public-sector websites and internet TV operations. House broker Collins Stewart forecasts profits of £2.9m next year rising to £3.9m in 2008, and slapped on a buy rating. But Canaccord Adams told clients to hold the shares, up 1p yesterday to 58.5p.