Market Report: Budget airlines tipped to fly whatever the weather

Things may have looked rather brighter on the blue-chip index last night after a volatile session finished with a major rally, but the possible effects of the worst-case scenario for the economy were still being mulled over in the City.

The fear that a fresh recession could be around the corner has been a major driver of the recent plummet in the global markets, and yesterday analysts were rushing to work out which stocks were best placed to weather such a situation if it occured.

One of them was Citigroup's Andrew Light, and he recommended the budget airlines to worried investors. Not only, said the analyst, did they "have by far the strongest balance sheets", but he also pointed out that "travellers, leisure and business, trade down in a recession, and leisure switches from long-haul to short-haul".

In addition, claimed Mr Light, "they would benefit most from lower oil prices... such that they can lower prices to stimulate traffic, as in previous recessions", and he picked out EasyJet, which flew up 20.2p to 330.6p.

Credit Suisse's analysts, meanwhile, were running their eyes over the capital goods sector with fairly optimistic results, claiming the "impact of a global recession may not be as bad as many currently fear". Changing their advice on GKN to "outperform" from "neutral", they said the car-parts maker did "have some 'recession' scenario protection" thank to its exposure to the aerospace industry, and it shot forwards 8.1p to 186.6p.

They also upgraded their rating for Morgan Crucible – up 6.4p to 270.9p – to "neutral" and calculated the potential downside for Spectris – up 13p to 1,289p – was less than the sector average. However, Spirax Sarco dipped 12p to 1,665p after the analysts warned demand for the engineer's products was "closely tied to levels of industrial production", cutting its rating from "outperform" to "neutral" as a result.

Elsewhere, the resilience of the advertising agencies was being examined by Deutsche Bank, which said the fact advertising spending had not yet recovered from its recent lows meant a downturn would not be as tough for the sector as the last time.

However, it still cut its estimates for the groups, saying they were "GDP proxies, so in this environment we are more inclined to favour those stocks in media which are not overly dependent on a benign macro [environment] to outperform". Nonetheless, WPP managed to ease up 9p to 613.5p while its mid-tier index peer Aegis creeped forwards 0.7p to 127.3p.

The markets appeared to be suffering from déjà vu in the first half of the session, as – just like on Wednesday – the banks quickly wiped out early gains thanks to mutterings from France. After Société Générale had denied rumours over its financial position the previous session, the stability of the French banks was still the subject of vague chatter, with reports claiming an Asian bank had decided to withdraw its credit lines to the country's major lenders.

Yet – with rumours emerging that a European ban on short selling was a possibility – the FTSE 100 ended up 155.67 points stronger at 5,162.83 as investors took heart from Wall Street, which was in positive territory after encouraging jobs data. As a consequence, Barclays, Lloyds Banking Group and Royal Bank of Scotland all managed to recover from early falls, climbing 14.15p to 177.85p, 1.36p to 32.21p and 0.98p to 25.27p.

Also bouncing back were the commodity stocks, with Essar Energy pushing forwards 20.8p to 282.9p, while Antofagasta jumped up 74p to 1,218p as copper prices were given a boost by an increase in the value of China's yuan.

Down on the FTSE 250, Premier Foods advanced 0.5p to 13.55p as investors reacted positively to the news that Michael Clarke – the new chief executive of the owner of Hovis – would be taking up his position next Tuesday, two weeks earlier than expected.

Meanwhile, despite announcing on Wednesday it was still set to meet its expectations for the year, TUI Travel continued to slide, falling 9.3p to 155p as its German parent company released its third-quarter figures. TUI AG was rather more downbeat, saying it no longer expected an increase in its full-year thanks partly to the recent unrest in the Middle East and North Africa.

The Takeover Panel's edict that Melrose – which closed 1p behind at 306p last night – must "put up or shut up" and make a formal offer for Charter International by 6 Septemberinitially saw the engineer drop as low as 622p, although it managed to recover by the bell, closing 21.5p stronger at 679.5p

The announcement that it had begun drilling at its Sapele-3 well off the coast of Cameroon was all it took for Bowleven to rocket up 16 per cent, with the oil and gas explorer shifting 18.75p to 135p on the Alternative Investment Market.

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