Market report: Tuesday close

By MICKEY CLARK FOR MAILONLINE
Updated:

 

Stock market investors are kissing goodbye to any lingering hopes of a further cut in interest rates with publication of the latest inflation numbers.

Mickey Clark

Mickey Clark, Evening Standard

The Consumer Prices Index jumped 0.8% to 3% year-on-year in April - its fastest pace in almost six years. That is well above the Chancellor's 2% target, and may well require Bank of England Governor Mervyn King to write another letter to 11 Downing Street, saying what he intends to do about it.

Dealers point out that the CPI always tends to flatter, and that the real rate of inflation is nearer the 4.2% indicated by the Retail Prices Index. Either way, it will severely curtail the Bank monetary policy committee's 's scope for cutting interest rates following three reductions since Christmas.

The sharp rise in the cost of living was not lost on investors or traders, and shares slammed into reverse after an early mark-up. That left the FTSE 100 down 8.7 points at 6211.90. Wall Street drifted, the made a recovery with the Dow rising 9.53 to 12,876.31.

Asset managers say there is still plenty of cash pouring into the market, ready to be invested. But there are also a growing number of calls on that cash. Royal Bank of Scotland, down 7p at 337¾p, and HBOS, 20½p lower at 485p, have between them announced plans to raise £16bn, and today it was the turn of French bank Crédit Agricole, which wants shareholders to stump up almost €6bn (£4.76bn).

Banks came under the hammer again today following further credit crunch related write-offs of £192m at Alliance & Leicester. The shares slumped 51¾p to 458¾p despite Cazenove repeating its outperform rating. Others hit included Bradford & Bingley, down 14¼p at 158¾p, and Lloyds TSB, off 6¾p at 418p.

Goldman Sachs said while the worst of the credit crunch may be over, we have yet to see the bottom of the economic and earnings cycles. The broker, which emerged from the credit crunch virtually unscathed, warns equity markets are stuck in a 'fat and flat' range.

Central bank intervention has strengthened the view that the worst of the crisis is over and justifies a 10% rally since the low point in March, the broker says. But it warns that earnings disappointments will continue to drive revisions lower, with higher oil prices eroding margins.

Housebuilders were clobbered following the shock profit warnings from Redrow, down 22¼p at 270½p, and Galliford Try, 2¼p off at 55¾p. The worsening state of the housing market also left Barratt down 18¼p at 257¼p, Berkeley 42p at 920p, Bovis 14½p at 468p, Persimmon 19½p at 580½p and Bellway 22p at 748½p.

Irish horse racing tycoons John Magnier and JP McManus have raised their holding in pubs chain Mitchells & Butlers, down 1¼p at 341½p. Their company, Elpida, has bought a further 4.84m shares, raising its stake to 29.1m or 7.23% of the company.

The pair have a habit of showing up in various bid situations, and made a killing in Manchester United's takeover. M&B last month announced plans to sell a 29% stake in its shares to rival Punch Taverns, down 30p at 576p, in return for its chain of managed pubs.

Bid target Rio Tinto leapt 236p to 6645p on talk of improved terms from BHP Billiton, up 39p at 2032p. Word is BHP may offer 3.8 of its own shares for every Rio Tinto. The current price already turns in a nice profit of £774m for its Chinese shareholders, who paid 6000p each for their 119.7m shares (11.9% stake). Both companies were giving presentations in the US this afternoon.

Security outfit G4S fell 15p to 225p after announcing plans to place 127m new shares, or 9.9% of the company, at a price to be set.

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TOMORROW'S AGENDA

• The City will scrutinise the Bank of England's quarterly Inflation Report for clues on future interest rate decisions. With oil, food and commodity costs hitting fresh highs, the Bank is expected to say price pressures are forcing it to reduce rates only gradually. The report is likely to paint a miserable picture of the economy, with the Bank likely to raise its predictions for inflation and cut its growth forecasts. It will be another blow for Chancellor Alistair Darling, if - as anticipated - growth forecasts for this year and next fall short of the 2% and 2.25% predicted in the Budget.

• Supermarkets chain J Sainsbury is tipped to shrug off the misery engulfing the retail sector in its annual results with a 28% jump in pre-tax profits. But the focus is likely to be on chief executive Justin King's comments on outlook for the year ahead amid concerns that trade is slowing as customers switch to lower-cost rivals.

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