Market Report: ICAP gains ground as market continues to slide

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The Independent Online

The market rally came to an end last night, with the FTSE 100 sliding as sovereign debt fears resurfaced, but ICAP stood firm as traders eyed the upside of the recent spike in volatility.

Inter-dealer brokers such as ICAP act as intermediaries between other market participants and thus tend to thrive as markets seesaw and investors rush to move their money.

That's just what happened last month as stock markets convulsed in response to southern Europe's sovereign debt woes. Credit Suisse said ICAP's electronic trading volumes were "extremely strong" during May, with a heady year-on-year increase of more than 60 per cent. Spot foreign exchange volumes, which carry higher margins, were also up, rising 60 per cent on the year and nearly 40 per cent on the month, the broker reported.

"Although we are careful about extrapolating volume trends from periods of exceptional volatility... the year to date trends suggest upside to our electronic revenue forecast for the current year," said Credit Suisse.

It added that a combination of "sustain volatility and macro-uncertainty and the much easier comparables" should mean ICAP's electronic business grows faster than its voice-broking unit this year.

As the former boasts higher incremental margins and benefits from a largely fixed cost base, "this should result in earnings growth in the coming year pacing ahead of revenue growth", the broker said. Its remarks helped ICAP to firm up by 2.7p to 394p.

Overall, the FTSE 100 fell sharply, shedding 85.2 points or 1.6 per cent, to 5,126. The FTSE 250 dropped by 201.33 points, or 2.1 per cent, to close at 9,599,85. The day began with rumours of derivatives-related problems at the French lender Société Générale. British bank stocks responded by moving lower as traders tried to work out if there was any truth in the chatter.

As it was, SocGen said it had no comment to make and the rumours soon died out, only to be replaced with concern about Hungary's debt position. Investors fled after the vice-chairman of the country's ruling Fidez party said the new government had found the public finances in a sorrier state than was previously thought. Hungarian markets swiftly veered south and the currency, the forint, fell sharply against the euro.

The optimists had pinned their hopes for a turnaround on the latest US unemployment figures, which were due out later in the afternoon, and which were expected to show strong jobs growth in the world's largest economy. But again, the bears received a boost after the report showed softer than expected gains in private-sector jobs, depressing markets on both sides of the Atlantic.

Back with the day's movements, and the grim newsflow weighed on Royal Bank of Scotland, which ended 5.5 per cent, or 2.5p lower, at 43.49p. Barclays was just behind with a 14.1p loss to 288.6p, while Standard Chartered fell 63.5p to 1,621.5p.

The waning appetite for risk also dampened the mood around the miners, with worries about the fragility of the US economic recovery stoking concerns about the demand for commodities.

The India-focused miner Vedanta Resources was among the weakest, easing by 120p to 2,175p after a report suggested that the Indian authorities, bidding to quell anger among those opposed to land being sold off for industrial purposes, might ask mining companies to share a proportion of their profits with local communities. Kazakhmys was just behind with a 59p drop to 1,119p, while Lonmin closed 66p lower at 1,594p.

Besides ICAP, only five stocks managed to close in the black. BP, up 1.1p at 433.25p, claimed fifth place after appearing to resist pressure to cut its dividend. In a statement, the oil giant, which is due to announce its second-quarter dividend next month, said it fully understood the importance of the payout to shareholders, which reassured most analysts.

Housing stocks had managed to rise on Thursday despite the Nationwide reporting a slowdown in the pace of property price growth. Their shares gave way yesterday, however, after the mortgage lender Halifax published a report saying prices had in fact fallen for a second consecutive month in May. The news unsettled the likes of Taylor Wimpey, which fell nearly 5 per cent, or 1.6p, to 32.14p, and Barratt Developments, which closed 4.3p, or 4 per cent lower, at 103.4p.

In the commercial property sector, Great Portland Estates fell 15.8p to 297.5p after Goldman Sachs removed the stock from its "conviction buy" list, citing valuation grounds.

Goldman also sullied the mood around the insurance broker Jardine Lloyd Thompson, which fell by 10p to 555p after the broker, once again highlighting recent gains in the company's share price, switched its view on the stock from "buy" to "neutral".

The sugar producer Tate & Lyle went the other way, adding 3.8p to 464.8p on the combination of vague bid rumours and some broker support. "We think Tate is a compelling long term turnaround story," said watchers at Evolution, revising their target price to 560p to reflect confidence in Tate's new chief executive, Javed Ahmed.