Market Report: Growth worries knock investors' confidence

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The Independent Online

The markets were all of a tizz earlier this week as traders steadied themselves for news from London and Washington that growth here and across the pond would be weaker than they had previously been told.

But confirmation from Mervyn King and Ben Bernanke that Britain and America's gross domestic product would indeed be worse than forecast did little to calm the City yesterday as the FTSE 100 dipped for a second consecutive day, closing 131.2p points lower at 5,245.21 – with just five stocks closing the day in positive territory.

"Markets appear in no mood for half-way measures and the initial reading is that the attempt by the Fed to be all things to all men may fall flat on its face," said Simon Denham, head of financial spread-betting firm Capital Spreads.

"Once again, hard decisions are being put further and further down the line and the consequence of this will undoubtedly be a bigger bill in the end. The immediacy of the political requirement for instantly successful fiscal policy – rather than long term strategic planning – is doing no good either in the US or in Europe and the UK. Trying to formulate policies in which there are no losers is just not realistic."

Lloyds Banking Group was bottom of the pile last night as investors linked the downgraded growth forecasts to a bumpy road ahead for the banks. Lloyds, which dropped 5.09p to 70.03p, was one of a number of financial institutions to find itself on the wrong end of investor sentiment.

Royal Bank of Scotland, the other taxpayer-backed bank, also found itself in the bottom 10, after falling by 2.45p to 46p.

The telecoms giant BT saw its shares slide by 8.6p to 137.8p, eroding some of the gains made over the past few weeks after BT settled its pay dispute with the Communications Workers' Union. After BT propped up the main list at one point yesterday, analysts put the slump down to the stock going ex-dividend.

A number of miners were among the laggards in early trading. Overnight data from China, the sector's key market, showing that its seemingly unstoppable growth was starting to slow, hit stocks. Vedanta and Kazakhmys made it into the bottom 10, falling 123p to 2,357p, and 73p to 1,168p respectively.

One of the most remarkable aspects of last year's recession was the confidence with which the holiday companies strutted, claiming to be among the most defensive of sectors.

But while other companies have reported better earnings since last year, both Tui and Thomas Cook have issued profits warnings this week. Tui's stock bore the brunt of the market's worries yesterday as its share price slipped by 13.1p to 190p. Thomas Cook's stock was down 3.7p at 180.2p.

Inmarsat may reach for the skies, sending its satellites into orbit, but its shares came down to Earth with a bump yesterday as the stock lost 35.5p to 702.5p. There was no obvious reason for the decline, with a spokesman for the company saying he was baffled by the falls. There was no news about Inmarsat yesterday and a dearth of comment from analysts.

Although few in number, there were winners yesterday. Chief among them was Smiths Group, which put on 45p to close at 1,193p, adding to the gains it made on Tuesday. Rumours are rife that the technology company could be broken up, and therefore benefit from merger and acquisition activity when the chief executive, Phillip Bowman, completes his restructuring of the business. There is momentum behind the shares, helped no doubt by a UBS note on Tuesday which said the stock could soon be scaling £14.

Aside from Smiths, not a single company in the top flight managed anything close to a 1 per cent improvement. Nonetheless, backers of gold miner Randgold Resources have seen their investment gain more than 12 per cent in the past month. They benefited again as gold prices ticked up on concerns about the global economic outlook. The shares closed up 25p at 5,465p.

The LSE's second division performed no better than the big league yesterday, as the FTSE 250 sunk 225.3 points to 9,854.49.

By far the most disappointing mover was Micro Focus, the software group, which warned the market that its full-year revenues would be take a battering after first-quarter sales stalled and customers sought delays in paying their bills. The market showed little mercy, sending Micro's stock down by 119p to end the day at 300p.

Almost as bad was the energy group Heritage Oil, which went ex-dividend yesterday and saw its stock slip 96.1p to 353.9p. The move was not helped by analysts at Royal Bank of Scotland, who issued a note that cut Heritage's share price target by 150p to 350p.

It was surprising to see the social housing maintenance outfit Connaught atop the FTSE 250, gaining an impressive 16.5 per cent, or 2.21p, to 15.61p. The markets seemed buoyed by news that the hedge fund Breeden European had halved its stake in Connaught to 6 per cent and seemingly given up on what was touted as a plan to merge the business with its rival Mears.

The sale at least removes a distraction at Connaught, which last month stunned the markets by announcing that it was starved of cash and facing a full-year loss.

It is also in talks with lenders about restructuring its debt pile, as its bankers start to sell their exposure.