Market Report: Supermarkets not invited to the party

  • @LauraHChesters

As stock markets flew up today there were two notable stragglers on the benchmark index: the supermarkets Sainsbury's and Morrisons. Across the sea of blue on traders' screens there were only three fallers on the blue-chip index as the markets rallied on news that the US has finally come to some agreement on the so-called fiscal cliff. So if everything was up, what's the problem at Sainsbury's and Morrisons?

Oriel Securities scribes think Sainsbury's has had a bad Christmas. They think that "things have got much tougher here since the interims", and its offer of 10p a litre off petrol for £60 spenders over the festive period was in response to "an uninspiring Christmas".

Oriel doesn't like Morrisons much either, and says that while larger rival Tesco "is slowly changing direction" Morrisons isn't. Oriel rates Sainsbury's a hold with a share price target of 300p. Morrisons gets a sell rating with a share price target of 225p, while Jefferies, joint house broker to Morrisons, has reduced its share price target to 310p as it expects like-for-like sales to have fallen over the Christmas period.

The supermarkets are due to give trading updates next week, but it is worth noting that every year the City expects Sainsbury's to have had a bad Christmas, only to be proved wrong when its figures come out. If things had been so bad the retailers would have had to notify the markets. Oriel thinks that in the short term Sainsbury's shares "look vulnerable". The stock lost 9.1p to 336p, while Morrisons finished down 5.6p to 257.4p.

Supermarkets were out of favour, but stocks exposed to the Far East were riding high after data out of China on New Year's Eve helped to push mining and resources stocks up.

HSBC China's manufacturing purchasing managers' index rose to 51.5, the best reading since May 2011.

But the real lift for the blue-chip index was of course the partial avoidance of the US fiscal cliff. Stock markets rose globally, with the FTSE 100 up 129.56 points to 6,027.37 – breaking the coveted 6,000 mark for the first time since July 2011. The index was led up by the steel maker Evraz, which worked up an 18.7p gain to 277.6p.

Investec Securities' banking guru Ian Gordon got a new-year boost as Barclays – his "preferred UK domestic bank" – led the banking stocks up, gaining 13.2p to 275.6p. Mr Gordon issued a note reiterating his buy recommendation for Barclays "despite a wonderful 79 per cent five-month rally" and raised his share price target to 285p.

The top flight index may have shot upwards but City soothsayers questioned whether the stock market is in fact dangling at the end of a giant elastic rope – bouncing up, only to fall down again.

Many in the City think President Barack Obama's deal with Congress isn't enough to change the global outlook for long. Gerard Lane of Shore Capital believes this has sent the markets into bungee-jumping mode – "you eventually end lower than where you started but it is great to fly back up". Certainly the effect boosted this year's first trading session, but the City doesn't expect it to last.

Mike van Dulken, the head of research at Accendo Markets, said: "The US didn't fall off its cliff, but it still might. Averting the fiscal cliff removed the threat of sending the world's number one economy back into recession. But does it change the status quo or foster any more growth? All eyes are back on rest of the world – China, Europe, Japan."

On the small-cap index, there was better news for the oil and gas services group Lamprell. After several profit warnings it has agreed a waiver of covenants with lenders and its shares lifted 19.25p to 113.25p. The paramour of AIM's Afferro Mining finally declared its intentions: International Mining and Infrastructure Corporation said it has made a £140m takeover offer for the iron-ore specialist. Afferro's shares lost 0.75p to 100.5p and Imic was static at 28.25p. One trader speculated that other bidders could emerge.

Also on AIM, the tiddler Sports Stars Media has signed up the Portugal and Real Madrid football star Cristiano Ronaldo to promote a football tournament driven by a social network platform, and the shares dribbled up 0.12p to 1.2p.