Gilts auction disaster sends equities into disarray

The disastrous gilts auction left shares in tormented disarray with the FT-SE 100 index crashing 38.3 points to 3,485.

At one time it was down 46.4. It was pulled off the floor as New York trimmed early losses and government stocks reduced their initial falls to around a point. Footsie was last below 3,500 at the end of last month.

The late recovery failed to mask the acute disappointment left by the outcome of the auction, the first time the Bank of England has experienced an under-subscription.

The failure to get all the pounds 3bn sale away, with its implications for interest rates, tax cuts and the Government's future funding, came at a time the stock market was already feeling a little disappointed by the unchanged US interest rates. Few expected a movement but confirmation was hardly cause for celebration.

At first the gilts reaction was more pronounced in the futures market. But as the session progressed there was a steady dribble of cash sales with overseas investors much more active than their domestic counterparts.

With the dollar and sterling giving ground and US bonds weak there was suddenly precious little joy for the bulls, who have based much of their case on the weight-of-money argument. Traditionally equities enjoy a strong gilts market. Judging by yesterday's performance, with quotes closing around one point down, such support may be difficult to find in the near future.

A few shares always manage to shine through even the deepest gloom. British Biotech, one of the bio babes which has had a volatile career since it arrived three years ago, ignored the gilts debacle in splendid style.

The shares surged 62p to an 830p peak as it signed an agreement for Glaxo Wellcome to develop its oral drug for the treatment of arthritis. Glaxo, up 3p at 762p, will make a pounds 3m down payment, followed by royalties.

ML Laboratories, after a few days of modest profit-taking. returned to favour, gaining 24p to 295p.

The company is said to be telling analysts it could receive a big boost from the drug cocktail therapy which is proving more successful in the fight against Aids. Trails of its D2s Aids drug are said to have gone well, with talk of results exceeding expectations.

More gloom engulfed builders, with Costain and Tarmac giving group figures. Trafalgar House, hoping to sell its house-building side, fell 3p to 30.5p, a new low.

Vodafone, the mobile telephone group, tumbled 15p to 253.5p as worries surfaced about the next set of sales figures. US sellers led the charge.

Eurotunnel had another distressing experience, tumbling 12p to an 89p low as Capital, the US investment group which is one of the tunnel's biggest shareholders, cut its stake to 7.11 per cent, selling nearly 16 million shares.

"Windfall" tax worries continued to plague electricities. There is a growing impression the industry could be hit hard in the Budget. A pounds 2.5bn demand is feared. Northern Electric, off 23p at 752p, was a main casualty as the market fretted about its weakness in a "windfall" raid following its handout to shareholders to thwart Trafalgar House. The plug was also pulled on PowerGen, down 17.5p to 551p, and National Power, down 15p to 515p.

Waters, which have not enjoyed the spectacular surge experienced by the electricities, dipped a little lower, with Thames off 7p at 522p.

Coal Investments lost 11p to 87p on a profits warning and Cray Electronics shaded to 44.5p on tax deals.

Insurance brokers were ruffled by downgrades from Kleinwort Benson and SBC Warburg.

Scottish & Newcastle fell 10p to 611p as Robert Fleming repeated its sell recommendation and Kleinwort suggested a switch into Whitbread.

Servisair, held at 211p as Securum, owned by the Swedish Government, sold its remaining 40 per cent interest in the airline support group. In what appeared to be a brought deal Cazenove sold the shares to institutions at 200p.

The upheaval in the main market made little difference to the rush to join AIM.

VDC, a distributor of veterinary products, arrived at 585p, up from 550p on the 4.2 market, and Meltek, a computer services group, and Pan Andean, seeking oil in Bolivia, will materialise today.

Zergo, an information security group, Lancashire Enterprises, a services group, African Gold, a Zimbabwean miner, and Guiton, publisher of Jersey's Evening Post, are due tomorrow.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map