Miners fell back last night after Cazenove, worried by the rapidly deteriorating demand outlook, took an axe to its commodity price assumptions.
The broker scaled back its assumptions for 2009 by 60 per cent for nickel, 57 per cent for copper, 55 per cent of zinc and 50 per cent for coking coal, ferrochrome and silver.
"The resultant fall in earnings for the FTSE 100 stocks under coverage are aggressive with downgrades ranging from 27 per cent to 91 per cent for 2009, and 14 per cent and 56 per cent for 2010," Cazenove said, changing its stance on a number of leading stocks.
BHP Billion, down 3.65 per cent, or 33p, at 872p; Xstrata, down 7.49 per cent, or 71p, at 876.5p, and Vedanta Resources, down 6 per cent, or 33.5p, at 524.5p, were downgraded to "in-line" from "outperform"; while Lonmin, off 5.15 per cent, or 47.5p, at 874p, was lowered to "underperform" from "in-line".
Overall, the FTSE 100 fell to 4,132.16, down 100.81 points, while the FTSE 250 lost 150.73 points to 5,977.03. One senior trader spoke of "death by a thousand cuts" after the Confederation of British Industry said the UK economy was heading into recession in the mould of the one suffered in 1991 and Citigroup announced another round of job losses in an effort to shrink its cost base by about 20 per cent. Confirmation that Japan had slipped into a recession in the third quarter also sullied sentiment across the market.
Anthony Grech, a market strategist at IG Index, said more investors might sell out in coming sessions as the Footsie falls towards the psychologically important 4,000-point mark. "The economic crisis is mutating rapidly and investors seem much more willing to sell at the slightest change," he said.
In the banking sector, Citigroup said that if the current downturn proves to be as bad as past crises, sector earnings may be "wiped out" and gross operating profits, loan books and deposit balances might contract by more than half. "Valuation metrics would all break down," Citi said. HBOS, down 13.87 per cent, or 12p, at 74.5p, and Lloyds TSB, down 10.24 per cent, or 17p, at 149p, were among the worst off.
Standard Chartered fell to 722p, down 7.02 per cent, or 54.5p, after Dresdner Kleinwort slashed its target price for the stock to 1,300p from 2,100p. "We except [the bank] to still grow its dividend by 5 per cent per annum in US dollars ... However, this will entirely depend on [its] decisions in terms of capital," the broker said, reiterating its view that the bank should raise £2-3bn to bolster its capital base.
Elsewhere, JP Morgan unsettled Tesco, which ended the session down 6.62 per cent, or 21.9p, at 308.7p. Downgrading the retailer to "underweight" from "neutral", the broker highlighted the threat from Aldi, the discount food retailer that has 3 per cent of the UK grocery market.
On the second tier, Gem Diamonds slumped to 213.5p, down 38.12 per cent, or 131.5p, after the precious metals miner said that, given the ensuing global financial turmoil and the sharp falls in diamond prices since last month, it may report a loss for the full year.
Mid-cap retailers, including DSG International, down 0.5p at 19.25p; HMV, down 3.5p at 114p, and Kesa Electricals, down 2.5p at 65.25p, remained on the back foot after the CBI issued its economic forecasts.
The engineering group Bodycote fell 27p to 96p after issuing a warning on its performance for the second half, prompting Dresdner Kleinwort to switch its stance on the stock to "sell" from "buy".
On the upside, the housebuilder Taylor Wimpey bucked the market trend, rising 6.46 per cent, or 0.6p, to 9.89p, following talk of bid interest from private equity investors.
The wider sector was mixed with Persimmon gaining 7p to 247p and Bellway rising to 507p, up 9.75p, while Bovis lost 1p to 322.75p and Redrow lost 2p to 162p. Also on the upside, the inter-dealer broker Tullett Prebon rebounded from recent losses, rising almost 7 per cent, or 9.5p, to 147.5p, after Citigroup moved the stock to "buy" from "sell".
"Tullett's electronic strategic challenges are well known, as are possible declines in trading activity in 2009," the broker said,
"However, the near 70 per cent share price fall in three months and current [valuation multiples] causes us to believe these are more than discounted in the share price."
Among smaller companies, UTV Media added 6.53 per cent, or 5.5p, to 89.75p after Organo Investments, the investment vehicle backed by the Racing Post owners Peter Crawley and Neill Hughes, took its stake to more than 11 per cent, cementing its position as the second-largest shareholder in the company.Reuse content