Yesterday's trading: Rate cut rumour gives a lift

By Geoff Foster for MailOnline
Updated:

 

Sky-high expectations that Mervyn King and his chums at the Bank of England will today sanction a further half a percentage point cut in interest rates to an all-time low of just 1% left the Footsie in fine fettle.

Trading screens

Rumour: Traders were confident rate would fall

It advanced a further 64.14 points to 4228.6, while the FTSE 250 jumped 191.04 points to 6321.81.

Dealers were adamant that January's half a percentage-point reduction would be repeated as the economic backdrop since then has been dire.

The International Monetary Fund downgraded its growth forecast to a post-war low and there was a massive 1.5% contraction in economic output in the fourth quarter. Thousands and thousands of jobs continue to be lost which surely makes a 1% base rate look unavoidable.

Housebuilders erected useful gains on hopes that further cuts in mortgage rates would help resuscitate the bombed-out housing market.

According to Nationwide, house prices fell 15.9% during 2008, the biggest annual drop on record. Prices are forecast to fall further this year before significant numbers of buyers return to the market.

The sharp cuts in interest rates from the 5.75% level prior to the run on Northern Rock in 2007 does provide support to existing and potential homeowners and certainly paves the way for the improvement in affordability which should encourage buyers back into the market.

Nationwide believes there is significant pent-up demand from potential first-time buyers who had been priced out of the market since 2003. Indeed, it estimates that as many as 750,000 potential buyers have been locked out of the market between 2003 and 2007.

Persimmon, the nation's biggest house-builder, climbed 23½p to 318½p to trade 75% above its low. Barratt Developments rose 3¾p to 73½p, Redrow 4¾p to 154p, Berkeley 26½p to 800p and Bellway 20½p to 612½p.

Cheaper money hopes lifted properties which have recently been heavily sold on fund raising and/or forced asset sale fears. British Land gained 29p to 455p, Hammerson 11½p to 389¼p and Land Securities 34p to 681p.

Property developer Quintain Estates rose 4½p to 30½p despite some guarded words on its banking covenants. Broker Singer Capital Markets is of the opinion that the shares will remain at 'option' level until a heavyweight third party is found to buy into Wembley thereby reassuring investors on valuation.

Buying on the back of the Kazakhstan Central Bank's 18% devaluation of the nation's currency, the tenge, helped Kazakhmys put on 36¼p to 280¼p.

Eurasian Natural Resources, in which Kazakhmys holds a 26% stake, added 47½p to 377¾p. Among other miners, Xstrata added 92½p at 719½p, Antofagasta 53¾p at 477p and Rio Tinto 186p to 1861p.

Lloyds Banking Group improved 6½p to 95¼p on talk of a pending circular. Barclays, up 4.6p at 96.9p, responded to a bullish Morgan Stanley note.

The US broker upgraded its current year pre-tax profit forecast to £5.8bn from £3.1bn following the board's open letter last week which reassured shareholders that the bank was well funded and profitable. MS believes Barclays Capital is outperforming the industry significantly.

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Revived gossip that Emerson Electric could be sniffing around again and a positive thirdquarter trading statement lifted Chloride 20¾p to 154¾p.

Six months ago Chloride's board rejected an indicative 270p-a-share offer from EE, one of the largest conglomerates in the US. Shareholders have been regretting it ever since.

Still buoyed by news that its consortium was chosen as preferred bidder for a £150m Building Schools for the Future programme in Birmingham, Redstone firmed 1½p more to 16½p. Whispers suggest that the resurgent IT and communications group is attracting the attention of a sector giant.

Luxury furnishings group Walker Greenbank, whose brands include Sanderson, Morris & Co and Zoffany, gained 2¼p to 12½p. Arden Partners advised clients to buy following an up-beat trading statement. Trading is holding better than feared and net debt has been reduced to a level which exceeded expectations.

Manpower Software, the provider of workforce optimisation solutions, improved 2½p to 41½p on news that fund manager Gartmore has increased its stake to 20%.

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