Market Report: Falling cotton price puts Next in pole position

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The Independent Online

The top-tier index may have finished weaker last night for the fifth day in a row as fears rose over the effects of the earthquake in Japan, but Next was one of the few wearing blue thanks to an easing in the price of cotton.

There has been a large rise in the commodity's value since last summer, causing concerns among investors at how retailers will be able to pass on the cost to consumers given the current economic climate. Yet in the past week there has been a significant decline in the price, and traders said it helped Next to gain 37p yesterday to close at 1,905p, leaving it in pole position.

The retail chain was given an additional boost by Credit Suisse reiterating its "outperform" recommendation and describing it as "perhaps better set up than investors realise for the short and medium term". The broker's analysts had particular praise for its Next Directory business, saying it "is set to continue to grow giving positive profit mix effects to the overall business" and calling it "an attractive defensive feature in the current difficult UK clothing market".

Also helping sentiment was an update from Debenhams, whose chief executive, Rob Templeman, described the first half of the year as "pleasing given the difficult trading environment". The department store company said its pre-tax profit for the six months would meet expectations, while there was also good news over its debt levels, and it outperformed the FTSE 250 despite creeping back 0.65p to 58.05p.

With the ongoing situation in Japan resulting in a large slide for the Nikkei, which eventually closed 11 per cent lower, the FTSE 100 was initially dragged below the 5,600 points level and – although the blue-chip index managed to rally somewhat – by the bell it was still 79.96 points lower at 5,695.28.

Investors were rushing to rid themselves of any exposure to risk, meaning the miners were among the worst hit, and Fresnillo and ENRC dropped 66p to 1,433p and 32p to 872p respectively.

Also among the major fallers was International Consolidated Airlines, despite the price of oil backing down, as Deutsche Lufthansa announced it was diverting flights bound for Tokyo to more southerly cities and other airlines said they were taking steps so their staff would not have to stay in the country overnight because of worries of exposure to radiation.

The shift down of 9.1p to 220.7p left the product of the merger between British Airways and Iberia at its lowest since it floated in January, even though analysts from Citigroup said it was one of the least exposed of its peers to the Japanese market.

GKN, meanwhile, fell 4.5p to 189.7p after the engineering group warned that demand from Japan for its products could fall.

Also still being hit were the insurance companies, including Aviva and RSA Insurance, down 8.3p to 431.7p and 0.3p to 131.6p respectively. Lancashire, 24p worse off at 536p, said it was not yet able to estimate the losses it would face from the devastation, as it revealed the first quarter of 2011 – which has seen, among other natural disasters, the New Zealand earthquake – has already cost it as much as $55m.

There were some companies seeing a rise from the tragedy in Japan, including the wind turbine gearbox manufacturer Hansen Transmissions. Traders pointed to its involvement in green technology amid the current negative sentiment towards nuclear energy as helping it to add 2.66p to 46.91p.

Elsewhere, Evolution Securities' Lakis Athanasiou upgraded Drax's rating to "neutral" from "reduce", saying the nuclear damage "reduces [the] risk of falling UK gas prices", although it still edged back 0.8p to 407.9p.

Away from Japan, G4S was 1.7p stronger at 258.6p after the security services group revealed that its profit for last year had increased by over 4 per cent. There was also an update from Close Brothers, which shed 20.5p to 840p, with the financial services company's banking unit particularly impressing analysts.

Down on the Alternative Investment Market, MBL was driven back 15.5p to 15.5p following its announcement that its contracts with Morrisons have been terminated. The distributor of entertainments products such as DVDs and CDs makes nearly 80 per cent of its sales through the 14-year agreement with the supermarket which will end in September.

There was better news for the penny stock Expansys as the online retailer was signed up by T-Mobile to distribute its pre-pay phones and SIM cards in the US. With its chief executive saying the country "represents one of Expansys' most attractive growth opportunities for SIM distribution", the group shot up 0.38p to 3p.

JJB Sports plummeted 0.75p to 12.75p after the small-cap chain announced its new plan to turn around its fortunes, which include closing nearly 90 stores. It also said a new fundraising of £65m is being supported by both its bank and key investors, although only if shareholders and landlords approve the proposals in a vote next week.