Stock market report: Tuesday close

By Mickey Clark for MailOnline
Updated:

 

The optimism that City investors displayed at the start of the New Year has been blown away, with the London stock market heading for its fifth consecutive day of losses.

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A big sell-off overnight in New York spilled over into Asia this morning as worries about the slump in the global economy and the US stimulus package gathered pace. Federal Reserve chairman Ben Bernanke, speaking today at the London School of economics, confessed he did not know when the economic recovery would get under way.

Meanwhile, City investors are becoming increasingly anxious about our own economy. Their concerns have been heightened by gloomy surveys from the British Chambers of Commerce and the British Retail Consortium, while the UK's trade gap with the rest of the world has widened to £8.3bn - the biggest deficit since records were started in the 17th century.

The FTSE 100 index responded with a fall of 27.0 to 4399.2. The broader FTSE 250 was down 153.1 at 6532.8. This afternoon, Wall Street lost an early lead despite a narrowing of the US trade deficit. The Dow fell 15.6 to 8458.2.

The Royal Institution of Chartered Surveyors tried to lighten the mood by pointing out that the pace of decline in house prices had slowed in December, but it countered this by pointing out that sales volume had hit a record low. Not good news for the housebuilders.

Taylor Wimpey fell 6p to 19p following its latest trading update. Barratt Developments also lost 7¼p to 93p, Berkeley Group 18½p to 870p, Bellway 16½p to 602p, and Redrow 2¼p to 163p.

Tesco rose 1.3p to 351.6p after its Christmas trading update. Brokers said it was in line with expectations, though it was the supermarket giant's worst performance in almost 20 years. Rival J Sainsbury responded with a ¼p fall to 315½p while Wm Morrison, which reports next week, dipped 1½p to 274p.

The banks bore the brunt of the selloff among blue-chips as they gave back most of yesterday's gains. City opinion says they will have to come back cap-in-hand to the Government later this year for another round of funding.

NCB Stockbrokers says Royal Bank of Scotland, down 3.9p at 51.1p, has a $3.5bn exposure to the bankrupt Lyondell Chemical, equivalent to 5% of the bank's 2009 forecast net asset value. Barclays fell 18.7p to 165.9p, with HBOS down 4.3p at 79.8p and merger partner Lloyds TSB 7.7p off at 133p following the low take-up of its open offer.

Miners also came under fresh selling pressure, reflecting a further softening of raw-material prices.

Rio Tinto lost 52p to 1555p and Xstrata 34p to 779p. Investec Securities has cut its target for BHP Billiton, 21p better at 1263p, by 13% to 1600p on weaker commodity price forecasts. But it still rates the shares a buy and says the company has the sector's strongest balance sheet. It could splash out $20bn on an acquisition without strain. Investec has also cut Anglo American, down 22p at 1429p, from buy to hold and slashed its target by 43% to 1500p.

British American Tobacco fell 43p to 1801p after Goldman Sachs cut its rating from buy to neutral along with Imperial Tobacco, down 32p at 1860p.

Merrill Lynch remains bearish about commercial property and warned the debt levels of a number of companies are not sustainable. Merrill wants clients to switch out of Liberty International, down 24p at 489½p, and into Hammerson, 36p off at 514½p, and out of Brixton, down 9¾p at 149½p, into Segro, 9½p cheaper at 242¼p.

Oriel Securities says commercial property values in the UK will continue to fall in 2009. 'Our own forecast for the sector's capital-growth performance in 2009 is a further decline of 11%, following on from a 27% collapse last year.'

Much of the bad news has been factored into share prices, but the decline in capital values has not. Oriel has downgraded the sector to underweight and says British Land, 29p off at 537p, and Land Securities, down 47½p at 892p, are rated a sell.

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Tomorrow's agenda

After Punch Taverns' annus horribilis in 2008, when shares in the pubs operator lost 90% of their value, investors will be hoping chief executive Giles Thorley has some better news for them at their annual shareholders' meeting. Analysts are divided on how the struggling group will say it has fared over Christmas. Some predict like-for-like sales will be down by about 5% for the period as cash-strapped consumers shunned its pubs and stayed at home. But optimists note that sales across the sector were stronger than expected over the festive season, so results could prove surprisingly solid. Either way, Thorley is likely to face a grilling from shareholders over the debt-laden company's future.

Hedge fund operator Man Group issues a third-quarter statement, with analysts warning that it is likely to make grim reading. Redemptions are expected to have picked up following the allegations of fraud against Bernard Madoff, while assets under management are predicted to have fallen another 18% since September.

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