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Markets Tuesday: FTSE extends early losses

Created:

19 August 2008

Written by:

Jonas Crosland

Leading equities were trading mostly lower in London this morning, reflecting further worries over the health of the financial sector. By lunchtime, the FTSE100 index was down 82.0 points at 5,368.2, while the FTSE250 index slid 184 points to 8,940. Trading volume was again rather light at £681m.

Investors in financial services stocks were rattled by comments from Kenneth Rogoff, the former International Monetary Fund economist, who said the worst was yet to come in the financial crisis. He added: "We’re not just going to see mid-sized banks go under in the next few months, we’re going to see a whopper."

The UK financial sector was down sharply. Following the poor take up of shares in the Bradford & Bingley rights issue, added to similar problems last month for HBOS, investors appear to be growing increasingly cautious of supporting the sector’s call for cash to prop up balance sheets.

Bradford & Bingley, whose shareholders left underwriters and other backers with an unsold “rump” of 72 per cent, fell 4.6 per cent to 51½p, while HBOS, which only sold 8.2 per cent of its rights issue to shareholders, lost 5.2 per cent to 283¾p. Royal Bank of Scotland shed 4.3 per cent to 218¾p.

Insurers shared in the pain. Prudential fell 4 per cent to 528p, Legal & General lost 4.4 per cent to 98.6p and Standard Life shed 3.8 per cent to 231½p.

Overnight losses for oil prices, back below $112 a barrel, put pressure on the rest of the energy sector. BP fell 0.4 per cent to 512¼p, while Royal Dutch Shell shed 1 per cent to £17.60 and Tullow Oil lost 1.4 per cent to 692½p.

Xstrata acknowledged the difficult market conditions for metals producers, saying it was closing its nickel mining operations at its 29,000 tonne per annum Falcondo division in the Dominican Republic.

"We are) temporarily suspending operations as a result of market conditions – due to a combination of high oil prices, which represent the majority of the site’s costs, and lower nickel prices,” the miner said. Shares in Xstrata rose 2.4 per cent to £28.91.

Brixton, the mid-cap property group, fell 5.7 per cent to 233¾p after reporting a 17.8 per cent fall in net asset value for its first half trading, while profit on investments eased 3.9 per cent leading to a net loss before tax of £236.7m. On the bright side, net rental income rose 13.5 per cent.

However, investors in other property groups and housebuilders failed to see anything but the gloom, and blue-chip property company Hammerson fell 4.8 per cent to 878½p, while builders Barratt Developments and Persimmon lost 4.5 per cent to 123½p and 5.3 per cent to 314p respectively.

Regional newspaper groups Trinity Mirror and Johnston Press found themselves at the bottom of the pile on the FTSE 250 on fears the slowdown and electronic competition will eat into advertising revenues. Shares in Trinity Mirror fell 5.2 per cent to 104¾p, while Johnston Press lost 5.8 per cent to 56½p.

BSkyB shares fell 2.3 per cent to 452p after JP Morgan reduced its price target for the company to 480p from 560p.

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MARKET DATA

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OVERSEAS MARKETS:

Wall Street stocks fell sharply on Monday as investors soured on financials, worrying about possible dilutive capital raising by Freddie Mac and Fannie Mae. Nine of the 10 leading industry groups closed in the red, dragging the benchmark S&P 500 down 1.5 per cent to 1,278.63. The Dow Jones Industrial Average fell 1.6 per cent to 11,479.39 and the Nasdaq Composite lost 1.5 per cent to 2,416.98. Stock markets in Asia Pacific fell on Tuesday led by the financial sector. Investors worried that economic growth would slow and profits would be reduced by continued turmoil related to the credit crisis. The MSCI Asia Pacific Index had lost 1.7 per cent to 122.95 by late morning in Tokyo, and was close to two-year lows. The Nikkei 225 average was down by 2.6 per cent lower by early afternoon in Tokyo at 12,824.95, and close to its lowest level in a month. The broader Topix index was 2.2 per cent lower at 1,236.55. Shares in Shanghai edged higher from their worst closed on Monday since December 2006. The composite index was 0.2 per cent higher at 2,324.13. Financial stocks and resource companies together accounted for nearly all of the fall in Australia. The S&P/ASX 200 index was 2 per cent lower by mid afternoon in Sydney at 4,882.90.

COMMODITIES:

Trading in oil futures remained volatile, with prices pushed higher on worries about possible supply disruptions in the Gulf of Mexico before easing back as threats of storm damage faded. Gold prices broke through the $800 level briefly but then subsided back down despite dollar weakness. Elsewhere, base metals edged ahead, while soft commodities were generally firmer.

FOREIGN EXCHANGE:

Profit taking eroded recent dollar gains, although analysts suggested that the underlying bullish tone remains intact. This was underpinned by news that speculative positions on the dollar have switched to a majority of long bets for the first time since February last year. Meanwhile, sterling fell further on fresh evidence that the UK economy is slipping into recession.

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