Market Report: Shock Chinese rate rise turns blue chips red

  • @MrNickClark

The top tier was listless yesterday until it was hit late in the session as China surprised the market by raising its interest rates, the first such change by the government in three years.

The news smashed the miners, which dragged the entire FTSE 100 index into the red. The worst hit was Fresnillo, which gave up 68p to close at 1,223p.

It had already been a trying morning for Xstrata as the market digested a disappointing interim management statement. While copper production rose 10 per cent in the third quarter, coal output fell 5 per cent after bad weather in Colombia and mine closures elsewhere. The shares dropped and then dropped again on the China news, closing 57p lower at 1,305p.

Bottom of the pile in the morning was the chip maker ARM Holdings, which was hit by a negative read-across from Apple's lower than expected sales of the iPad, weaker gross margins and conservative outlook. The UK company, which is part-owned by Apple and makes chips used in iPhones and iPads, retreated 2.6 per cent, or 10.4p, to 388.7p. This was despite the fact that Apple still reported record results as earnings soared thanks to iPhone sales.

It was not all bad for technology stocks. Autonomy shares have struggled since an update at the beginning of this month, but rose 25p to 1,444p yesterday. The company brought its trading statement forward from Thursday and, despite fears that the stock normally drops on results day, it was at the top of the FTSE 100 at lunchtime. Mike Lynch, the chief executive, said growth prospects were good and the market was still waiting for news of an expected acquisition. The analysts backed its results, with Numis upgrading the stock from "sell" to "hold" while Panmure Gordon said it was "inclined to give Autonomy the nod" and moved it to a "buy".

Also enjoying the session was Royal Bank of Scotland, which climbed by 0.64p to 46.95p after a Fitch Ratings report said that as earnings at the big UK banks had improved, they had also showed improvements in risk profiles and funding structures, with asset quality stabilising. Fitch did dampen enthusiasm somewhat, because it added that the tighter capital regulation brought in by Basel III, among other new rules, would hit earnings.

While UBS cut Old Mutual's price target from 180p to 160p, the insurer still climbed in the morning. The shares dropped last week after HSBC walked away from a deal to buy Old Mutual's stake in Nedbank. While no reasons were given, the UBS analyst Michael Christelis speculated it was because of senior changes at HSBC, adding that the stake was still likely to be sold.

The uncertainty prompted UBS to reduce its price target for Old Mutual, but still has the stock on a "buy" and said it should still be able to repay £1.5bn of debt by the end of 2012. The retreat in the wider market dragged it 0.8p lower by the close to 137.7p. On the second tier, Jupiter Fund Management reigned almighty, storming up by more than 10 per cent after the market reacted with delight to its interim management statement. The asset manager was listed this summer and the shares have since risen 50 per cent.

Yesterday's results showed that the group had beaten analysts' forecasts by increasing its assets under management to £22.2bn by the end of September, with net inflows of £734m. Numis upped its rating from "hold" to "add", saying it deserved "a premium valuation". The shares closed up 25p at 285p.

Also storming up the FTSE 250 was Mothercare, following support from UBS. The Swiss broker increased its rating from "hold" to "buy" and its price target by 15p to 565p. The Swiss bank's analyst, Isabel Green, said she had expected worse second-quarter results from the retailer after a poor first quarter and a weak consumer environment in the UK. The shares have also fallen 20 per cent in the past 12 months. This gives "a good entry point for this quality stock with long term international growth potential," Ms Green said. Mothercare closed up 26.5p at 523.5p.

As news of Britain's defence cuts emerged, stocks in the sector took a hammering, particularly QinetiQ, which tumbled by more than 12 per cent at one stage. This was brought on by the Ministry of Defence announcing that it had cancelled part of its training – specifically Package 1 of the Defence Training Review Programme.

QinetiQ was part of the Metrix consortium which was unveiled as the preferred bidder to provide the services in 2007. The company revealed yesterday that it had incurred costs of £37m since then, which will now be written off. Yet it closed in positive territory up 0.9p at 111.5p.

On the downside, Bellway fell close to the foot of the index after putting out its final results. While the housebuilder strengthened slightly in the afternoon, its shares still gave up 36.5p to close at 565p. The drop was prompted by Bellway cutting its full-year target after revealing that autumn trading sales were down year on year. This prompted analysts at Investec and KBC Peel Hunt to slash their rating on the business.

On the growth market, Velti, a mobile marketing technology company, retreated after it was forced to amend its interim figures to show it had taken a $2.8m foreign exchange hit on a loan. The shares fell 5p to 580p.