Market report: Tuesday close
The Chancellor may desperately want mortgage lenders to lower rates and ease the housing crisis - but the City reckons he's got no chance.
Evening Standard's Hugo Duncan
Merrill Lynch today warned there will be 'a further deterioration in the mortgage lending environment' in the coming months and that the usual 'spring bounce' in the housing market 'is less bouncy than it should be'.
The research note by Merrill analysts Mark Hake and Judy Shaw made grim reading for Alistair Darling and his boss Gordon Brown as well as for those struggling to meet mortgage costs or get a new home loan. It is also more bad news for housebuilders, who have seen their share prices more than halve in value since early last year.
Merrill gave them another kicking today by downgrading Barratt Developments, Bellway, Redrow, Bovis Homes and Taylor Wimpey.
Calling it 'triple witching time' for the sector, Hake and Shaw said: 'Worryingly, it is clear that the UK housebuilders are entering a new and potentially volatile period characterised by significantly constrained mortgage availability, buyers deferring purchases in anticipation of price falls, and their growing concerns about employment security.'
Before now, Merrill reckoned the number of houses sold this year would fall 15%. Today it revised its forecasts, predicting a 25% drop.
'We also pull back our house price expectations, and now envisage that UK prices will likely deteriorate 5% in each of 2008 and 2009,' it said.
Persimmon shares plunged 37p, or 5%, to 662p while second-tier rivals were also on the slide. Barratt fell 18½p to 346¾p, Bellway 26p to 764p, Redrow 6½p to 286¼p, Bovis Homes Group 18½p to 494p and Taylor Wimpey 9p to 150¾p.
The banking sector was in focus after Royal Bank of Scotland took its begging bowl to the City and asked investors for a staggering £12bn.
RBS shares tumbled 14½p to 358p, a fall of almost 4%, and were followed down by rivals on speculation that other banks will unveil rights issues of their own. Barclays and HBOS are among the favourites, and their shares fell 17½p and 20p respectively to 461p and 520p.
Home Retail Group shares, down 13¼p to 243¼p, and DSG International, off 5¾p to 62¼p, led the decline among retailers after Merrill cut the industry to underweight on concern that spending will be hit by higher living costs.
Once again, blue-chip miners and oil explorers came riding to the rescue and stopped the wider market from suffering too heavily.
The FTSE 100 index fell 18.3 points to 6034.7 after Asian stocks retreated from their recent seven-week highs. The Dow Jones was down 55.7 points to 12,769.3 in New York tonight.
Rising metal prices helped Antofagasta jump 28p to 830p and Xstrata rise 85p to 3998p, while oil's move above $118 a barrel saw BP nudge 2½p higher to 576p, Cairn Energy put on 35p to 3050p and Tullow Oil tick up 11p to 732p.
Citigroup cut its profits forecasts on Rentokil Initial after the royal ratcatcher yesterday warned its City Link parcels business was likely to make significant losses this year. However, it believes new chief executive Alan Brown presented 'a credible turnaround plan'. The shares eased 2½p to 95p.
Plans by the Daily Sport to position itself as a more upmarket newspaper were met with shock, and shares in owner Sport Media Group initially plunged by more than a quarter to 30p. That provided non-executive director David Bailey with a buying opportunity and he snapped up 75,000 shares at 29¾p each - an outlay of just over £22,300. The shares fell ½p to 30p.
TOMORROW'S AGENDA
• The City will scrutinise minutes from this month's meeting of the Bank of England's monetary policy committee for clues on future rate-setting decisions. Economists believe all nine members will have voted for a quarter-point cut, but there is speculation arch-dove David Blanchflower and Sir John Gieve may have opted for a half-point reduction.
• Mining giant BHP Billiton, which has its sights set on taking over rival Rio Tinto, unveils first-quarter production figures. Shareholders are keen to see how much poor weather in Australia has hit iron ore and coal output.
• GlaxoSmithKline is tipped to unveil sales of £5.6bn for the first quarter when it kicks off the reporting season for pharmaceutical companies. Asthma drug Advair should prove its most lucrative treatment but analysts warn of increased competition from AstraZeneca's Symbicort.
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