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Markets Tuesday: FTSE slips on poor data

Created:

13 May 2008

Written by:

Jonas Crosland

Leading equities are above the worst but are still weaker after more gloomy economic news. The FTSE 100 index was down 78.3 points at one stage before coming back at lunchtime to stand at 6,172.3, still 48.3 points lower. Mid cap stocks were also weak, and the FTSE250 index shed 171 points to 10,355. Trading volume remained below average at £884m.

Annual consumer price inflation rose to 3 per cent in April – higher than an expected 2.6 per cent level – reflecting gains in utility and food bills, FT.Com reports. The British Retail Consortium showed same-store sales growth fell for a second-consecutive month in April – the first consecutive decline in three years – as households tightened their belts in the face of rising fuel and food bills.

Spending on items like clothing and footwear fell to their lowest levels for nearly eight years, and weighed heavily on Next, the FTSE 100 fashion retailer, which fell 3.2 per cent to £12.67. Marks & Spencer slid 2 per cent to 397½p, while Kingfisher lost 2.9 per cent to 147p

Tui Travel, Europe’s biggest holiday company, beat the consumer gloom, however, as it saw ”no indications of customers trading down or altering their holiday plans as a result of economic conditions”. The shares rose 1.8 per cent to 264p after the company reported that first-half losses narrowed and that it expected strong summer trading.

Enterprise Inns said, however, that it was experiencing a tough consumer environment after it revealed an 11 per cent fall in first-half profits. ”Consumer leisure spend is likely to remain under pressure for some time,” said chief executive Ted Tuppen.

The company said it would likely convert into a low-taxation real estate investment trust (REIT) by start of the next fiscal year. The early boost from this news faded, however, and the shares fell 2.8 per cent to 473½p.

Banks were lower after Alliance & Leicester said it had taken a £192m hit to profit in the first four months as the credit crunch took its toll. A&L shares were down 9.9 per cent to 460p. Mortgage lenders were severely hit, and HBOS fell 5.3 per cent to 478.4p, while Bradford & Bingley lost 7.2 per cent to 160.5p.

Royal Bank of Scotland announced a ”list of parties” had shown interest in acquiring its insurance businesses. Although Fred Goodwin, chief executive, did not identify any potential suitors, speculation has centred on private equity companies.

The bank’s insurance arm, which includes the high profile Churchill and Direct Line brands, will be sold off in an auction process and is estimated to be worth about £8bn. RBS shares fell 2.3 per cent to 336¾p.

BHP Billiton, the resources group, embroilled in a hostile bid to take over rival Rio Tinto, said it was also looking to expand its petroleum business by making acquisitions. BHP shares were 0.4 per cent higher at £20.01.

OVERSEAS MARKETS:

Most Asia-Pacific equities showed muted gains on Tuesday, following Wall Street's gains overnight, as investors took heart from retreating oil prices and better-than-expected earnings from HSBC. The Nikkei 225 gained 0.6 per cent to 13,831.85. Over in Hong Kong, shares eked out a 0.51 per cent gain to 25,190.18. HSBC, which said overnight that first quarter earnings were higher than in 2007, despite having to put aside nearly $6bn in additional provisions from the credit crisis. US stocks posted their best gains in a week on Monday as oil prices retreated from record highs, the dollar gained strength and investors looked to pick up bargains following the sharp falls of the previous session. By the close in New York, the S&P 500 was 1.1 per cent higher at 1,404.06 while the Nasdaq Composite was 1.8 per cent higher at 2,488.49. The Dow Jones Industrial Average was 1 per cent higher at 12,876.31.

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MARKET DATA

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COMMODITIES:

Profit-taking finally brought a halt to the steady rise in oil prices, although analysts maintain that the upward trend remains intact, with little sign of falling demand, especially from emerging markets. Soft commodities continued to rise however. Corn prices reached a record high after forecasts of weaker output in the US this year, while soyabean futures rose after a warning that inventories in the US are set to decline despite higher output.

FOREIGN EXCHANGE:

Sterling staged a strong recovery after inflation data came in much stronger than expected. This has led to speculation that the Bank of England will resist pressure to make further cuts in interest rates. The dollar was also broadly firmer amid suggestions that the US administration will act to put a floor under the dollar, helped also by signs that the Fed may pause for breath after cutting lending rates from 5.25 per cent to 2 per cent since the start of the credit crunch last summer.

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