FTSE in-depth: Footsie buffeted by High St gloom

By This Is Money
Updated: 02:37 EDT, 17 June 2011

The Footsie continues to be beset by bad news at home and abroad, which led shares on the country's main index to slide yesterday.

At home the High Street was the centre of the gloom for investors, with UK retail sales falling 1.4% in May, according to the Office for National Statistics.

This figure was worse than the market was expecting and reverses the 1.1% rise in High Street sales in April, which was boosted by the Royal wedding and a string of bank holidays.

Analysts agree that consumers are being hit hard by the rise in value added tax at the start of the year, higher inflation, slow wage growth, and uncertainty over the impact of public sector cuts.

'Consumer spending looks set to be depressed over the summer months, said Jeremy Cook, chief economist at foreign exchange group World First.

'The average man on the street does not have too much too be happy about at the moment.' But the slump in retail spending is hitting some harder than others.

This week grocery giant Sainsbury's, which rose 1p to 324.7p, and Tesco, down 7p to 397.4p, both posted slowing sales and said consumers were cutting back on their discretionary spending.

Sainsbury's chief executive Justin King said this was the 'toughest' period he had seen in his 28 years in the business.

However, at the top end of the high street brands like leather goods maker Mulberry and fashion house Burberry smash forecasts and post record results. Mulberry said yesterday its annual profits quadrupled to £23.3m.

Those with cash continue to spend, analysts note. But consumers on middle and lower incomes are beginning to feel the squeeze.

Meanwhile from abroad the Footsie was buffeted by concerns over a possible Greek default, the soft patch hit by the US recovery and China's attempts to cool its overheating economy.

'The country's top 100 companies are essentially global businesses,' said Richard Hunter, head of UK Equities at brokers Hargreaves Lansdown. 'And these global concerns weigh heavily on them.'

This led benchmark FTSE 100 to fall 43.74 points to 5698.81. London's leading shares have fallen 6.9% from their highest level this year on February 8 as investors speculated that the pace of the global economic recovery is faltering.

However, Wall Street rose in early trading with the Dow Jones index up 83.10 to 11,980.37 as investors looked for value in the market after its recent sell-off, shrugging off weaker-than-expected regional factory data.

Completing the day's retail round up shares in SuperGroup, which owns fashion chain Superdry, rose 21p to 839.73p. Rumours spread around the market that US rival Abercrombie & Fitch is preparing a bid.

But most of the more considered market watchers, think this takeover talk is fanciful. Instead most analysts are concerned at the slide the SuperGroup has suffered in recent weeks.

The retailer only floated a year ago and has been as high as £16 in that period. The retailer will host an investors day next week, and the firm will be keen to show the market that the business has not already lost its way.

Miners were the worst performing sector yesterday, after aluminium, copper, lead, nickel, tin and zinc all fell on the London Metal Exchange as the Greek debt crisis fanned speculation of a slowdown in growth and demand for industrial metals.

Kazakhmys, a shareholder in ENRC, was down 42p at 1,240p. Rio Tinto, the world's second-biggest mining company, retreated 32.5p to 4,079p. Anglo American lost 50.5p to 2,813p, while Xstrata fell 19.5p to 1,240p.

However commodities trader Glencore closed up 2.8p at 475.8p despite a cautious note from MF Global, which initiated coverage on Glencore with a 'sell' rating.

Deutsche Bank was more positive about Glencore's prospects but cut back its target price to 620p from 650p. The business floated last month at 530p.

Earlier in the week the commodities trader posted a 47% surge in first-quarter profits in its maiden results to the market. However, investors were alarmed at a 20% slump in profits at its key metals and mineral units.

ENRC, which has been the focus of bid speculation involving Glencore as it suffers its own boardroom upheaval over corporate governance, fell 21p to 723p.

One of the few Footsie firms able to make a modest gain yesterday, apart from Sainsbury's and Glencore, was outsourcing firm Capita, which rose 5p to 744.5p.