Fears are growing that J Sainsbury will accompany next week's interim figures with a highly competitive promotional campaign, a belated response to Tesco's so- called New Deal Pricing, which materialised last month.
Worries of another profit margins crunch prompted Nick Bubb, an analyst with Morgan Stanley, to reduce his current year's Sainsbury forecast by pounds 20m to pounds 770m and next year's by pounds 30m to pounds 820m.
He has moved his recommendation from hold to sell; Kwik Save, due to report final results next week, suffered the same fate, with the forecast reduced from pounds 135m to pounds 127m.
Mr Bubb believes the already hard-pressed industry has had a difficult month, with the Tesco initiative creating considerable strain.
He is, at least for the time being, holding his Tesco forecast at pounds 580m and Asda at pounds 220m.
Supermarkets have had a rough time as low inflation and fierce competition have eroded margins. But their bruised and battered shares appeared to be on the recovery trail until Tesco produced its latest assault.
The Bubb gloom clipped most food retailers, although Sainsbury recovered an early fall, closing 2p higher at 386p.
The rest of the stock market flattered only to deceive. At one time the FT-SE 100 index was up 28.8 points with, some felt, perhaps a sprinkling of those once-famous green shoots evident. But by the close the index was down one point, below the crucial 3,000, at 2,999.9.
The poorly received government stocks auction deepened the gloom. The 1.2 times cover for the pounds 2.5bn 8 per cent sale compounded the negative sentiment emanating from the Continent and then New York. Gilts consequently fell by up to pounds 1/2 .
Interest rate fears continue to loom large, keeping buyers sidelined and hitting turnover. A series of special deals, such as a 5 million placing of the publisher Emap at 352p by NatWest Securities, inflated turnover. Emap closed 3p lower at 357p.
Among blue chips P&O put on 8p to 602p on UBS support; Prudential rose 10p to 308p as the SIB report was submerged by encouraging life figures, and Eastern Group, the former Eastern Electricity, gave up 12.5p to 742.5p.
British Petroleum and Shell firmed as oil started to flow from the fields west of the Shetland Islands. The BP price was 2.5p higher at 413.5p and Shell gained 6p to 700p.
Imperial Chemical Industries, reporting third-quarter figures today, was little changed at 799p. Expectations range from pounds 120m to pounds 140m.
Much of the day's excitement occurred among second- and third-liners. Thinly traded Abbey Panels, to be renamed Loades, jumped 37p to 345p. The shares started the week at 283p.
The group, which makes components for the aerospace and motor industries, has made losses for three years but achieved a pounds 249,000 profit in the first half of the year ended last month. Assets are thought to be more than 600p a share.
Continental Foods, the Red Mill snacks group, was busily traded, with Seaq putting volume at 7.6 million shares. The price held at 2p. Select Industries, a tyre maker, firmed to 6p as volume reached 5.8 million.
Filtronic Comtak, the mobile telephone group that arrived on Monday at 105p, continued to ring bells, reaching 124p and closing at 120p.
Courtyard Leisure, the loss-making London wine bar chain, gained a token 1p to 20p as Gilland, a Belgian group, emerged as an 8.79 per cent shareholder.
Its intentions are not known.
Scantronic, the troubled security equipment group, rose 2.5p to 17.5p on takeover talk, fuelled by the arrival of the UBS fund management arm as 10.27 per cent shareholders.
The group, which has had takeover approaches, is hoping to raise pounds 1.6m from shareholders to provide working capital. It lost pounds 2.4m in the half-year ending last month.
Alliance Resources held at 10.75p. Encouraging test results on its Louisiana development are expected soon.
A rally petered out and the FT-SE 100 index closed one point down at 2,999.9; the supporting FT-SE 250 index lost 7.4 to 3,467.2. Turnover was a lowly 523.1 million shares with 21,309 bargains recorded. Government stocks were weak.
Bullers, the film services and giftware group, headed by David Cunningham and featuring the investment expert Jim Slater among its shareholders, is thought to be on the verge of making a rights issue to raise pounds 1.3m. It is likely to have made losses in its first half but is now in profit. There is talk of more than pounds 2m next year. The shares are 22.5p.
Essex Furniture has produced another polished profits performance, hitting pounds 1,406,000 against pounds 1,088,000. When it came to market in 1989 profits were pounds 499,000. The market expects about pounds 1.9m this year.
The group, which has opened its first northern outlet (at Leeds), expects to have 30 shops by the end of the year. The shares rose 3p to 195p.Reuse content