Market report: Wednesday close

By Mickey Clark for MailOnline
Updated: 12:16 EDT, 13 August 2008

The Bank of England's gloomy assessment of the economy means tough times lie ahead for consumers, the UK's big retailers and ultimately their shareholders.

Updates: Latest share prices

The Old Lady of Threadneedle Street warns that inflation is set to peak at 5% with little prospect of a cut in interest rates short term, forcing consumers to tighten their belts.

The stock market took heed of the warning and slashed the value of shares in the leading retailers.

Among those hardest hit was Marks & Spencer, down 29¾p at 266¼p, having traded within a whisker of the 300p resistance level for the first time since the start of July. Independent researcher Redburn Partners warns M&S shareholders are unlikely to see a dividend increase for the next five years as the retailer's share of the food market declines and growth falters at its Per Una fashion brand. It says a weaker food market will make the next few years 'very challenging' for the group.

Also taking a hit was DSG International, the PC World and Currys electrical stores group, which slumped 10¼p to 54½p, making it the biggest loser among second liners. Pali International's Nick Bubb has repeated his sell rating and is reviewing his 33p target for the shares. He describes them as 'very overvalued' and urges short-sellers to hold their nerve. Rival JPMorgan has also cut its rating on DSG from neutral to underweight.

Other retailers to feel the claws of stock-market bear included Kingfisher, down 13.8p at 124.6p, Next, 89½p off at 990½p, and J Sainsbury 27½p cheaper at 340¼p. Belt-tightening by consumers will also affect the likes of Enterprise Inns, down 43¼p at 342¾p, Whitbread, 102p at 1143p, Punch Taverns, 45p at 323p, Domino's Pizza, 15p at 187¼p, and JD Wetherspoon 42¼p at 246¾p.

The rest of the market took its lead from overnight falls in New York. The FTSE 100 index lost 85.9 to 5448.6, additionally weighed down to the tune of eight points by the number of companies going ex-dividend. These included BP, 10½p lighter at 524½p, Hammerson, 91½p lower at 900½p, RSA Insurance, down 7.4p at 140.9p, Standard Chartered, off 98p at 1392p, and Standard Life, 8¾p cheaper at 240¼p. Wall Street extended yesterday's falls in early trading this afternoon following news of the first drop in retail sales for five months and a big rise in import prices. The Dow dropped 111.4 to 11,531.1.

The bulk of the fall in the FTSE 100 was attributed to the banks, which suffered another sell-off following big falls on Wall Street overnight, where JPMorgan Chase wrote off a further $1.5bn of dodgy loans. It comes hard on the heels of further big write-offs at Switzerland's UBS. Royal Bank of Scotland fell 15¾p to 229¾p, after the Commonwealth Bank of Australia walked away from talks to buy its ABN Amro business in Australia. There were also losses for HBOS, 24p off at 307p, Barclays, down 27p at 351½p, and Lloyds TSB, 20½p to 308½p.

Shares of Bob Holt's Mears Group, 2p lighter at 298p, have enjoyed a strong run of late, buoyed by talk of an imminent 500p-plus-a-share takeover. But Altium Securities reckons the shares have run far enough and are now up with events. It has downgraded the social housing and care home services group from buy to hold with a target of 325p ahead of interim results next week.

Altium Securities says it is forecasting profit before tax of £8.5 for the first half of 2008 against £7.2m in the first half of 2007.

Investec Securities has raised Signet Group, 3p off at 60¾p, from hold to buy while upping its target from 58p to 83p following its re-rating of the shares.

SPG Media Group shares rose 1.25p to 8.88p following news that the publishing and event management company has rejected an unsolicited approach.

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Tomorrow's agenda

Europe's biggest package tour operator, Tui Travel, is expected to say sales are holding up despite the consumer spending slowdown when it updates the market on trading. Takeup of summer holidays is thought to have been strong, with minimal discounting and many holidaymakers upgrading to long-haul and all-inclusive packages. Bookings for winter, considered to be more discretionary than summer vacations, will be scrutinised but broker Investec Securities predicts there will be few signs that people are cutting back.

Bellway gives the latest update on the ailing property market. Two months ago, the housebuilder reported that reservations had fallen by 31% and that the value of its order book had slumped after the key spring selling season failed to get off the ground. The City will be keen to hear Bellway's take on summer sales but after grim data on the housing market, few are optimistic.