Market report: Wednesday close

By Mickey Clark for MailOnline
Updated:

 

The banking sector was suffering from a bad case of hypocrisy today. Royal Bank of Scotland has cut its rating on Barclays from hold to sell and slashed its target from 475p to 300p.

London Stock exchange

Movers: The latest from the Stock Exchange

It claims Barclays needs to raise a further cash sum of between £4.9bn and £7.5bn because its credit quality and coverage ratios are weakening at a time when its core deposit momentum is proving disappointing.

This comes from a bank which had recently to go cap in hand to shareholders with a record-breaking £12bn rights issue because it paid over the odds for its stake in Dutch bank ABN Amro and because of write-offs running into hundreds of millions of pounds relating to the credit crunch. And which bank did RBS fight off to secure ABN? Barclays, of course. Clearly there is little love lost between the two sides.

But the comments from RBS are likely to strike a sour note with householders struggling to meet their monthly mortgage repayments, or those first-time buyers unable to afford to put a deposit down on a new home. Even so, the words from RBS sent Barclays sliding 13.5p to 350¼p, while Lloyds TSB shed 7.5p to 303½p. There were also losses for Alliance & Leicester, 21¼p at 318¾p, Bradford & Bingley 2¼p at 42¾p, HBOS, 67¾p to 303¼p, HSBC 3¾p at 883¾p, and last, but not least, RBS, down 4½p at 237p.

The growing prospect of recession in the UK undermined confidence among stock market investors. Sentiment was also hit by reports that hedge funds are suffering their worst returns in 18 years because of the credit crunch and the worldwide economic downturn. The US commodity hedge fund Ospraie, part owned by Lehman Brothers, is being shut down after suffering heavy losses of almost 40% of its worth this year, following a sell-off in the fund's energy, mining and resource equity holdings.

Against such a backdrop, and gloomy trading news from Punch Taverns and retailer DSG International, the FTSE 100 closed down 121 points at 5499.7. Wall Street extended yesterday's losses this afternoon with the Dow losing 30 at 11,487.0.

Lower crude prices may be good news for most us, but they are bad news for the oil producers, BP lost 5½p to close at 506p. However Goldman Sachs has added BP's shares to its European buy list and raised its target from 690p to 720p because it reckons they are looking cheap. Goldman says since the price of Brent crude reached a peak of almost $147 a barrel in July, it has fallen by 25%. That has led the oil sector to underperform the European market by 9%. "We maintain a bullish view on the oil price , which gives us 36% scope for improvement in the sector," says Goldman.

The move coincides with a warning from Credit Suisse that the sharp decline in the oil price during the past two months will come to an end soon, with Opec cutting production once prices dip below $100 a barrel. Production curbs should keep prices between $100 and $110 for the rest of this year.

Meanwhile, JPMorgan has trimmed its target for BG Group, down 72p at 1047p, from 1500p to 1480p, but remains overweight in the shares.

Wolseley slumped 12½p to 473p, making it one of the biggest Footsie 100 fallers, after Deutsche Bank downgraded the shares from buy to hold. The shares have rallied from their low of 272¼p in July.

Kaupthing describes the recent rally in the retail sector as without foundation and untimely. It warns the expected rise in unemployment and the weakness of the dollar do not bode well.

Only a few names offer value and are protected from top-line and gross-margin risk. Further cuts in forecasts and falls in share prices are forecast by the broker. The few on its shopping list include HMV, ¾p off at 132p, Debenhams, down ½p at 47¾p, Asos, 4¾p easier at 392p, Mothercare, 6½p dearer at 416p and Ted Baker, down 2¾p at 348p.

City coverage and share tips

This is Money carries breaking City news throughout the day. Bookmark Companies & Markets and try these markets links...

Newspaper graphic and pen

Tomorrow's agenda

All eyes will be on the Bank of England as the monetary policy committee announces its interest-rate decision at noon. Rate-setters are expected to ignore the pleas of retailers and business leaders for a cut and leave the base rate unchanged at 5% for a fifth month. But, with inflation surging and economic growth slowing, a third successive three-way split is forecast. The usual suspects are likely to break from the norm, with Timothy Besley expected to opt for a quarter-point rise and arch-dove David Blanchflower again calling for a cut.

The highlight of Whitbread's trading update should be budget hotels chain Premier inn, which has so far defied the credit crunch with strong sales growth. in July, the leisure group unveiled an asset swap of 44 of its Beefeater and Brewers Fayre restaurants for a number of Mitchells & Butlers hotels, a canny move that reduced its exposure to the restaurant sector at a time of falling consumer confidence.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Most watched Money videos

{"status":"error","code":"499","payload":"Asset id not found: readcomments comments with assetId=1641199, assetTypeId=1"}