Market Report: Unlucky 13th for Footsie as Europe rating fears grow
It was all too good to be true.
At the end of a week in which the news coming from the troubled eurozone had been fairly promising for once, the Square Mile was cursing its luck on Friday the 13th as talk of imminent credit rating downgrades for a number of countries in the region prompted the FTSE 100 to tumble.
Successful debt auctions from Italy and Spain earlier in the week had helped create some optimism over the Continent's debt crisis, and the Footsie started yesterday's session on the rise.
Yet as reports emerged in the afternoon claiming Standard & Poor's was preparing to downgrade the credit ratings of certain eurozone members – including removing France's triple-A rating – the top-tier index followed world markets in lurching downwards, eventually closing 25.78 points worse off at 5,636.64.
Rumours of such a move, especially for France, have made regular appearances in recent weeks. However, investors were taking the latest talk – which suggested the cuts could be made after markets closed last night – more seriously than before.
Some traders were saying the sharp fall was a bit of an overreaction, pointing out that there have been numerous warnings that downgrades were on the way. However, they were also nervously eyeing developments in Greece, where discussions between the country and its bondholders broke down, bringing closer the possibility of a full-scale default.
However, the latest news from the eurozone did not stop a number of financial stocks managing to rise. Royal Bank of Scotland even ended up taking the top spot by rising 1.1p to 24.1p – its fourth winning session in a row. The group kept its gains despite JPMorgan in the US getting the bank's reporting season off to a bad start by revealing a large drop in its fourth-quarter profits.
RBS was helped, however, by Seymour Pierce's Bruce Packard. Praising the bank's shake-up of its investment operations, which it revealed earlier in the week, he said its bosses were finally "grasping the nettle", and raised his recommendation by two notches from "sell" to "buy".
Down at the other end, Vodafone was one of the session's worst fallers thanks to concerns ahead of its trading statement next month. Rumours the mobile phone giant has been playing down analysts' expectations were denied by the group, while the bearish whispers were also being linked to Morgan Stanley's Nick Delfas cutting his estimates.
Although Mr Delfas kept his "buy" advice on Vodafone, he also warned that there was "potential weakness" on the horizon because of the economic problems in Italy as well as Europe in general. In response, and despite also having its rating upgraded by Nomura to "buy", Vodafone dropped 4.5p to 175p.
It was another volatile day for Tesco following the supermarket's profits warning on Thursday which prompted it to shed 16 per cent. At one point it looked as if it was going to manage a partial rebound, but – as a number of analysts rushed to remove their "buy" recommendations – the world's third-largest retailer ended up being pegged back a further 6.65p to 316.8p.
Invensys became the latest firm to warn its profits were going to miss expectations, leaving the engineer 19.33 per cent weaker at 183.2p. Investors who had piled into the group on the recommendation of one of its joint corporate brokers Bank of America Merrill Lynch will have been feeling particularly annoyed given it changed its advice to "buy" just a day before the profits warning.
Also among the top mid-tier losers was Imagination Technologies, which fell 22.5p to 538p after optimism the chip designer is going to get a boost from Apple's figures later in the month were played down. Berenberg's Zhancheng Li – who cut his advice to "hold" – said that even if sales figures from the US giant were ahead of forecasts, Imagination (whose technology is used by Apple) would only see a modest impact to its revenues.
Despite Indian software giant and technology bellwether Infosys cutting its growth forecasts, Logica managed to creep up 0.25p to 72.9p. The troubled IT services group was also having to deal with Panmure Gordon's George O'Connor taking a knife to his forecasts, with the scribbler criticising it for being "poorly positioned".
After a recent jump in its share price, Robert Wiseman Dairies decided to come clean and reveal it was in takeover talks with Germany's Müller Dairy. The small-cap group, which claims it produces more than 30 per cent of all the fresh milk drunk in Britain, spiked up 84p – or 34.43 per cent – to 328p, although it was eager to point out that there was no certainty a bid would be made.
Elsewhere, Thomas Cook flew up 0.75p to 15.25p amid vague speculation the troubled tour operator could soon reveal some more disposals.
FTSE 100 Risers
BT 203.4p (up 3.7p, 1.85 per cent)
Telecoms group finishes high up the top-tier index's leaderboard after Nomura's analysts give it a double upgrade, cutting their rating from "reduce" to "buy".
Lloyds Banking Group 29.5p (up 0.35p, 1.2 per cent)
One of a number of banks to rise, as it reveals its boss Antonio Horta-Osorio – who was on sick leave for two months – will not take his $2.4m bonus.
FTSE 100 Fallers
RSA Insurance 110p (down 1.9p, 1.7 per cent)
Insurer knocked back after Citigroup downgrades the group's recommendation to "neutral" from "buy" and cuts its target price from 145p to 115p.
Bunzl 882.5p (down 13p, 1.45 per cent)
Business supplies distributor left weaker in the wake of analysts from UBS reducing their advice to "neutral", saying they believe the sector will be hit by the eurozone's woes.
FTSE 250 Risers
Hays 64.7p (up 3.15p, 5.12 per cent)
Recruiter jumps after Credit Suisse raises its rating to "neutral", with the Swiss broker doing the same for a number of the group's peers in the sector.
Spectris 1,482p (up 72p, 5.11 per cent)
Engineer cheers investors by predicting its adjusted operating profit for the year should jump 40 per cent thanks partly to strong demand from China.
FTSE 250 Fallers
Cape 376p (down 12.3p, 3.17 per cent)
After a strong rise earlier in the week thanks to an upbeat outlook statement for 2012, industrial services provider eases back despite Panmure Gordon raising its price target to 410p.
Ocado 72.35p (down 1.65p, 2.23 per cent)
Investors choose to bank profits in the wake of the online grocer's huge 33 per cent climb on Thursday, which came as the result of an encouraging Christmas update.
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