FTSE in-depth: Footsie spooked by second quake

 

Investors in London were spooked by late afternoon news of another major earthquake and tsunami alert off the coast of Japan.

Geoff Foster

Wall Street lost 40 points in early trading and the Footsie fell away to close 33.76 points lower at 6,007.37.

Dealers were relieved though to hear that no impact had been detected at the Fukushima nuclear plant, which was seriously disabled by the first tremor about a month ago.

Overnight news that Portugal had become the third eurozone country to seek a multibillion pound EU bailout certainly came as no surprise, as markets had been expecting it for months.

Fears that Spain could be the next to pass the hat around was pooh-poohed by Caroline Vincent, European fund manager at Cavendish Asset Management.

She said: 'It is unlikely, on balance, that Spain will soon suffer the same fate. In terms of economic size and the ability to absorb debt, the gap between Spain and Portugal is far wider than the gaps between Greece, Ireland, and Portugal.

'The sort of pressure that would be required to push Spain into the same situation would have to significantly exceed the levels of pressure so far seen to be exerted on the three bailout nations.'

Her comments also came on the day that the European Central Bank, as expected, increased eurozone interest rates by 0.25% to 1.25%. The Bank of England kept UK rates on hold at 0.5% for the 25th month in succession and the size of quantitative easing on hold at £200bn, where it has been since November 2009.

Reflecting relief that poor old Portugal had effectively cleared the air of any uncertainty, banks made progress. HSBC rose 6.8p to 667.25p and Royal Bank of Scotland, 83% owned by the UK taxpayer, improved 0.14p to 42.925p.

Having already been hired by the Japanese authorities to provide temporary power to the affected earthquake area, Aggreko put on 22p further to 1695.5p on hopes the contract will be extended following the new tremor.

Tesco edged up 0.95p to 394.025p on a Panmure Gordon recommendation and target price of £5.

Analyst Philip Dorgan says Tesco trades at a discount to its UK peers, because it has failed recently to demonstrate that market leadership drives shareholder returns.

New boss Phil Clarke needs to fix the five year-long UK underperformance, and he needs to do so without trashing the operating margin in the face of a supply/demand mismatch. He then needs to deliver substantially higher International returns.

Britvic's shareholders were left with a sour taste in the mouth after shares of the Tango and Robinsons squash group were sold down to 381.75p before rallying to finish 4.4p off at 394.75p. Goldman Sachs downgraded to sell from neutral and slashed its six-month target price to 384p from 460p.

Goldmans believe the consumer end markets in the UK and Ireland make trading challenging, and the sales mix will continue to suffer from the consumer's quest for value.

Britvic blamed rising ingredient costs for February's shock profits warning. Chief executive Paul Moody said the greatest pain was being felt in the cost of plastic bottle material PET, which had risen sharply of late due to the surge in the price of oil, its key ingredient.

Goldmans says PET resin prices have continued to rise in March and April, and as supply shortages keep prices high, it sees further margin pressure from input costs. It now expects the Britvic management to acknowledge further pressure from rising input costs when reporting figures for the half year on May 27.

Enough is enough. Espirito Santo reckons the hefty 19% fall in the Mears share price over the past month following record results looks overdone.

The broker advised clients to buy as the stock eased 2p further to 245p on a report that Housing Minister, Grant Shapps, is proposing to launch a 'tenant cashback' scheme, which will provide cash to tenants to undertake repair activity themselves circumventing housing associations and councils.

Turnover in alternative energy group D1 Oils swelled to almost 8m as the shares soared 1.05p or 49% to 3.1p after it announced a crude Jatopha oil (CJO) trial with Siemens.

In the trial, the German industrial giant will use DI's CJO biodiesel to power turbines on a high speed ferry. The trial, on behalf of a third party, was one of three by European multinational businesses for which D1 had recently supplied over 70 tonnes of CJO.