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Markets Friday: Falling banks drag on FTSE

Created:

9 May 2008

Written by:

Claer Barrett

London equities fell on Friday, as a fresh record high crude price and awful results from US insurer AIG unsettled investors, reports FT.com. The FTSE 100 was 69.5 points or 1.1 per cent weaker at 6,201.3. The mid-cap FTSE 250 lost 96.7 points or 0.9 per cent at 10,453.1.

Banks were weaker after a week in which fears about the health of the UK mortgage market lingered and the Bank of England left UK interest rates on hold at 5 per cent. A record quarterly loss from AIG, the world’s largest insurer, undermined sentiment in the financial services sector. The US insurance company also reported $15bn of credit-related writedowns.

“Just when the markets were starting to believe we were through the worst of the credit crisis, horrendous figures from AIG have touched the credit crunch nerve once again. Investors are also being unnerved by the constant record highs in crude and the potential toll this may have on consumer spending,” said Martin Slaney, head of derivatives at GFT.

Royal & Sun Alliance dropped 3.5 per cent to 140.4p, Legal & General lost nearly 2 per cent at 125.2p and Friends Provident fell 1.9 per cent to 116.8p. Aviva, which last week abandoned the Norwich Union brand, slipped 2.4 per cent to 631½p.

Among the banks Alliance & Leicester, the largest lender of unsecured loans in the UK, fell nearly 3 per cent to 508½p. HBOS, the biggest listed mortgage lender, fell 1.8 per cent to 504½p and Lloyds TSB was 1.8 per cent lower at 435.3p. HSBC was 1.6 per cent lower at 867½p.

Oil companies stayed strong buoyed by the elevated oil price, which is on course for its biggest weekly gain in more than a year, according to Bloomberg data. Crude prices hit a new record of $124.50 overnight. BP moved 0.2 per cent higher to 619½p and Royal Dutch Shell rose 0.1 per cent to £20.35.

Investors continued to react badly to Carphone Warehouse’s £1.1bn electronic goods retail joint venture deal with Best Buy of the US. Carphone’s shares lost a further 6.6 per cent to 269.8p.

Johnson Matthey fell 2.1 per cent to £13.00 from £16.70 after the platinum producer’s rating was cut to “underweight” from “equal weight” by analysts at Morgan Stanley.

Strong organic revenue growth at IMI helped the mid-cap engineer to the top of the FTSE 250 with a 6.9 per cent advance to 511p.

High street music retailer HMV impressed investors with news that its annual profits looked set to hit the upper end of forecast ranges. Its shares rose 6.4 per cent to 158.7p.

The news brought down the curtain on a better week for high street stocks after several well-received updates from the sector soothed the worst aspects of fears about consumer spending.

Kingfisher, the name behind the B&Q home improvement chain, rose 1.4 per cent to 147.2p. Sainsbury was 1.6 per cent stronger at 401.8p and Wm Morrison made gains of 1.6 per cent to 292½p.

OVERSEAS MARKETS:

Shares in Asia Pacific fell for the third day in a row, as the US insurer AIG made bigger than expected quarterly losses of $7.8bn, triggering worries of further subprime trouble ahead, and two big Japanese companies, the carmaker Toyota and the camera maker Olympus, predicted profits would fall as raw material costs rise.

The MSCI Asia Pacific index had fallen 0.5 per cent to 149.90 by late morning in Tokyo after starting the trading day with a small rise.

Oil consolidated above $124 a barrel. Nymex light sweet crude was trading at $124.26 by late morning in Singapore compared with a record level of $124.53 overnight in New York.

Electronics companies and car makers accounted for nearly half of the fall in Asia’s biggest equity market, Japan, where the Nikkei 225 average was trading 1.5 per cent lower by early afternoon in Tokyo at 13,730.75 and the broader Topix index was 1.5 per cent lower at 1,352.16.

Toyota Motor, the world’s second-biggest car maker after General Motors of the US, fell by 2.9 per cent to Y5,320 after saying that more expensive fuel, a US economic slowdown and the stronger yen would cut annual profits by around a quarter. Toyota announced a 28 per cent fall in fourth-quarter net income on Thursday after the markets closed. Other car makers suffered. Honda Motor fell by 3.6 per cent to Y3,220 and Suzuki Motor slid 3.8 per cent to Y2,550.

Olympus also predicted profits for this financial year would fall by a quarter as competition intensifies and raw materials become more expensive. Olympus plunged 5.5 per cent to Y3,270.

The chipmaker Elpida Memory dropped 3.7 per cent to Y3,910 after its South Korean rival, Hynix Semiconductor, beat it to a tie-up with ProMOS Technologies of Taiwan.

The consumer lender Takefuji slumped 12.4 per cent to Y2,190 after saying profits would be lower than analysts expected. Other companies in the sector also fell: Orix was down 3.2 per cent to Y17,750 and Acom lost 1.2 per cent to Y3,250.

Australian shares bucked the regional trend, as one of the country’s biggest banks, National Australia Bank, said profits rose by 26 per cent in the first half of the year, and buoyant oil prices lifted BHP Billiton, the world’s largest miner, which is also a big oil explorer. The S&P/ASX 200 index was 1.1 per cent higher by mid afternoon in Sydney at 5,787.50.

Centro Properties, the debt-ridden owner of US and Australian shopping malls, spiked by 19 per cent during the first few minutes of trade after saying it had been given a further seven months to repay or refinance A$6.6bn of loans. But more recently it was trading just 1.1 per cent higher at 47.5 Australian cents.

US stocks posted modest gains on Thursday as investors responded to solid sales figures from Wal-Mart, the world’s largest retailer, and encouraging data on retail sales and jobless claims.

Leading market indices moved from positive to negative within a fairly narrow range, before closing higher.

By the close of trading in New York, the S&P 500 index was 0.4 per cent higher at 1,397.68 while the Nasdaq Composite was 0.5 per cent higher at 2,451.24. The Dow Jones Industrial Average was up 0.4 per cent at 12,866.78.

Analysts were looking for leading retail chains to report a 2.5 per cent gain in same-store sales in April. If stores hit the forecasts, it would mark the biggest monthly rise in same-store sales since November.

DAILY TECHNICAL COMMENT

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MARKET DATA

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COMMODITIES

Crude oil futures set a fresh record high on Friday as concerns about supplies to the US grew. A warning from Opec that it would not increase output added to already heightened concerns about supplies of oil. The cartel on Thursday blamed dollar weakness rather than a lack of production for the elevated price.

US corn prices hit record levels yesterday amid expectations that today's update from the US department of agriculture will include downward revisions to production forecasts this year, as planting in the Midwest has been hampered by bad weather.

FOREIGN EXCHANGE

The pound pulled higher from a 10-week low against the dollar yesterday after the Bank of England left UK interest rates on hold following its Monetary Policy Committee meeting. Most analysts were expecting the central bank to keep UK interest rates on hold at 5 per cent. However, a recent string of weak UK economic data had seen the pound sell-off sharply against the dollar, and prompted a significant minority into predicting a 25 basis-point cut in rates to 4.75 per cent.

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