Market report: Thursday close
Some spectacular falls saw the mining sector lose about 20% of its value yesterday and, according to Goldman Sachs, further steep falls can be expected in the days ahead.
Big loss: UK markets may follow global markets down
Financial markets are now braced for a deep global recession, and that has already hit demand for, and the price of, raw materials. Prices have fallen sharply in recent weeks, and shares in the major miners have followed suit. It is unlikely the economic slowdown in the West will be offset by China's continued growth.
Goldman has begun cutting its metals price forecasts. Worried that Chinese demand alone will be unable to keep metals markets underpinned, it has also revised its bulk forecasts. It expects April 2009 contract prices for iron ore to drop by 20%, and coking coal contracts to settle at $210 a tonne.
Goldman warns that cheaper metals prices could be here until 2011 at the earliest. It has downgraded Anglo American, off 176p at 1150p, from buy to neutral and slashed its target from 3284p to 1765p. Lonmin, down 149p at 1250p, is cut from neutral to sell, with its target down from 2034p to 1253p.
Only yesterday, shares of Rio Tinto slumped 469p after the company suggested the Chinese economy was 'pausing-for breath'. Rio shares today shed a further 307p to 2050p, stretching their two-day deficit to 552p, or almost 20% of the firm's market value.
Evolution Securities says future earnings will be downgraded because a further softening of metal prices is expected.
Rio now plans to run down its own inventories by the year-end to improve its balance sheet. Other losers today included Kazakhmys - down 47½p at 289¼p, Vedanta Resources, losing 113½p at 632½p, and Xstrata, off 154p at 904p.
Elsewhere in the equity market, there was no respite for investors as they continued to be haunted by the prospect of a full-blown global recession.
The FTSE 100 index slumped to 3840.5 - its lowest since April 2003, before reducing the deficit to 218.2 points, or 5.35%, at 3861.39. Even so, that stretched its two-day loss to 465.8 points, or 10%. Wall Street lost an early lead this afternoon on news of a slump in industrial production. The Dow fell 134 to 8444.
London traders say investors used the rally at the start of the week to unload stock. They add that there is now pressure on hedge funds to meet increased margin calls, and evidence that some traders are reluctant to take on new business because liquidity is tight.
A profit warning left Travis Perkins down 150¾p at 330¼p, making it the worst performer among second-liners. The building products supplier described trading as worse than expected. Brokers say it is unlikely the company will pay a dividend. That left rival Wolseley 60¾p lower at 285¼p.
Banks rescued by the Government this week continued to post small improvements. Lloyds TSB, which is being forced to pay £6.2bn for rival HBOS, firmed 2.2p to 152.4p and Royal Bank of Scotland rose 3½p to 68½p. HBOS dipped 1.6p to 84.1p, and has now joined the 90% Club, which consists of companies whose shares are worth just 10% of their peak value in the past three years.
Fears that the big insurers may have to raise fresh funds, or sell stock into a falling market in order to maintain liquidity levels left Prudential nursing a loss of 72¼p to 297¾p. There were also falls for Legal & General, 7.8p to 64p, Old Mutual, 13.7p to 49.6p, and Aviva, 50½p to 341½p.
JJB Sports firmed 2¼p to 27p despite Dresdner Kleinwort cutting its price target to 20p. Citigroup says bargain-hunters should give JJB a wide berth despite the collapse in the share price from 173p this year.
Dresdner has slashed its target from 75p to 20p.
Charter aircraft broker Air Partner slumped 70p to 570p despite better-than-expected results. The group has warned that forward bookings are down.
SHARES ADVICE & TOOLS
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Tomorrow's agenda
Mecca Bingo and Grosvenor casinos owner
Rank Group updates the market on trading as it continues to suffer from the smoking ban, changes to gambling laws and a tougher tax regime. Chief executive Ian Burke has done his best to counter their effects by cutting costs, while the easing of Government restrictions on lucrative jackpot-slot machines is welcome news for Rank. But its shares have taken a kicking in the past year as investors shun the sector on concerns over the impact of a consumer spending slump. The takeover favourite became the subject of renewed speculation this week after Asia-based Guoco again lifted its stake.
With the US housing market not expected to start to recover until late next year, September's housing starts figures will be closely watched. Economists forecast that the number of homes built will have dipped from 895,000 in August to 880,000.
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