Market Report: City unmoved by Shore's star-spangled optimism
There may not have been many in the Square Mile feeling particularly positive towards our cousins across the Atlantic yesterday, but that did not stop some urging investors to choose stocks focused on the United States. Shore Capital was acting as the country's cheerleader, after saying its economy was set next year to enjoy an even greater divergence in fortunes from Europe.
Predicting further downgrades for the continent were "likely", Shore's Gerard Lane said that – thanks in part to a differing policy response – the outlook for the US in contrast was much more positive, recommending UK stocks "with a large US revenues exposure" as a result.
Yet, with reports during the session claiming politicians in Washington were set to fail to reach an agreement over cutting the country's deficit, the City unsurprisingly did not share Mr Lane's enthusiasm. Among the stocks the analyst picked out as particularly set to benefit from his forecast were the defence giant BAE Systems and the engineer Smiths Group, but they were knocked back 6.4p to 262.2p and 38p to 870.5p respectively.
However, he also highlighted Tate & Lyle and Carnival, and – in a tough day for the FTSE 100 – by the bell the two had managed to outperform their fellow blue-chip stocks, creeping down a mere 1p to 682p and 11p to 2,075p.
Overall, the benchmark index slumped 140.34 points to 5,222.6, meaning it has now shed nearly 6 per cent in the past six days. It was a similar tale in markets across the world, with the lack of a deal in the US and a warning from Moody's that France's credit rating was at risk overshadowing any optimism emerging from the conservative Popular Party winning a landslide victory in Spain's general election.
China's vice premier, Wang Qishan, did not help by claiming an "extended" global recession was unavoidable, as the miners took yet another large kicking. Among the precious metal diggers, Fresnillo dipped 118p to 1,593p while Centamin Egypt was pegged back 10.71 per cent to 88.4p, with the latter particularly hit by the recent revival of unrest in Cairo.
Lloyds was left at a new two-and-a-half year low, falling 1.78p to 23.42p after concerns over the length of boss Antonio Horta-Osorio's sick leave were raised by its announcement that non-executive director David Roberts would take the role of interim chief executive if Horta-Osorio's return is delayed.
Meanwhile, Royal Bank of Scotland slid 1.01p to 19.56p after Espirito Santo's Shailesh Raikundlia decided to downgrade his advice to "neutral". Saying the UK Government's stake in the bank was "likely to remain an overhang for some time", the analyst slashed his price target by more than half from 51p to 22p.
The possibility of a takeover meant Phoenix was flying on the FTSE 250, as the insurer shot up 32.9p, or 6.69 per cent, to 525p. The group announced over the weekend that it was considering a number of bid approaches, although it said talks with the insurance buyout specialist Resolution – which slipped 18.7p to 230.2p – had come to an end.
The bid spotlight was back on Home Retail once again thanks to Peel Hunt, which said the company's current market capitalisation discounted any value for its Argos chain, therefore making it "an attractive prospect for acquisition or private equity". "We believe an aggressive management team would extract clear value [from Argos] if the current team does not," added the broker's analyst.
However, they also said it was "towards the top of our list of retailers we expect to deliver a Christmas profit warning", and – with traders nervous over the effect on profit margins in the sector from sales discounts in the run-up to the festive period – Home Retail ended up closing 0.9p lower at 73.8p.
Despite the Government announcing plans to help first-time buyers get on the housing ladder, the housebuilders remained deep in the red. Taylor Wimpey plummeted 2.05p to 37.13p while Persimmon and Bellway retreated 18.5p to 476.5p and 27.5p to 693.5p respectively even as Credit Suisse kept its "outperform" rating on all three.
On its first day of trading after completing a merger with Nathaniel Rothschild and Tony Hayward's investment vehicle Vallares, the Kurdistan oil group Genel Energy fell 7.41 per cent to 912p despite the fact that it is eventually expected to join the top-tier index.
Down among the small-cap stocks, it was a good news day for Mecom, with the publisher driven up 23.5p to 169.5p. The media group, which owns a number of newspapers across Europe, confirmed talk it was in discussions about a possible disposal of its Norwegian unit, following reports A-pressen could be about to pay £175m for the business.
FTSE 100 Risers
l Shire 2,008p (up 3p, 0.15 per cent) Having dropped nearly 2.5 per cent over the previous two sessions, pharmaceuticals group manages a tiny bounce as it becomes the only blue-chip stock to rise.
l Admiral 815.5p (down 5p, 0.61 per cent) Insurer's losses are limited after HSBC chooses it as one of a number of European stocks that will outperform thanks to paying a dividend of more than 8 per cent.
FTSE 100 Fallers
l Barclays 157.5p (down 8.9p, 5.35 per cent) Bank drops as its chief executive Bob Diamond says he expects European companies in the sector to see a rush of consolidation over the next year.
l ICAP 327.3p (down 17.2p, 4.99 per cent) Interdealer broker knocked by Espirito Santo's analysts cutting their fair value on the group to 317p from 485p, although they keep their "neutral" recommendation.
FTSE 250 Risers
l Spirent Communications 117.9p (up 0.8p, 0.68 per cent) Telecoms testing group's modest advance brings to an end a five-session losing streak, over which time it retreated more than 7 per cent.
l SDL 617p (up 2p, 0.33 per cent) Translation software company is given an extension by the takeover panel to 5 December for it to make a bid for marketing technology firm Alterian.
FTSE 250 Fallers
l Cable & Wireless Worldwide 17.66p (down 2.2p, 11.08 per cent) Telecommunications group is hit yet again, meaning it has lost a huge 41.52 per cent since suspending future dividends last week.
l Micro Focus 348.2p (down 11.8p, 3.28 per cent) Software company falls despite Panmure Gordon's George O'Connor keeping his "buy" rating and saying it has historically performed well in downturns.
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