Market update - 10 June

The FTSE 100 was down 24 points at 5853.6 at 11:59 a.m. on Tuesday. The price of crude remained off Friday’s highs, hurting miners and oil companies, which dominated the loser board. The Eurasian Natural Resources Corporation was a notable exception – in a surprise turn of events, Kazakhmys increased its stake in the company to 22.24 per cent, sending ENRC up by 5.66 per cent or 75p to 1400p, to the top of the London benchmark. The move comes after days of speculation suggesting that Kazakhmys was preparing to offload its original 14.6 per cent stake.

Moving up

The London Stock Exchange was up 15.5p at 907p after Credit Suisse upgraded the stock to "neutral" from "underperform".

A positive broker report also gave a lift to the Home Retail Group, which rose by 2p to 233.75p. UBS revised its rating on the stock to "buy" from "neutral", citing the company’s potential as a "natural consolidator".

"The strength of the group balance sheet, consistent market share gains, and severe weakness of some competitors suggests that there is some downside protection here from any further demand slump. HRG can use its balance sheet to be more flexible with expansion, buying terms, space deals and even acquisitions," the broker said.

On the FTSE 350, Informa continued to rally, rising by 10.5p to 448p, after market talk suggested that private equity groups were eyeing the company.

Bid speculation was also evident around Drax, which rose to second place on the mid-cap index, up 32p at 739p. Talk of a possible offer from Centrica attracted speculators, but traders pointed to the company’s likely promotion to the FTSE 100 as the main reason for the strength in the stock.

Also on the upside, Easyjet climbed by 4.25p to 305p as the oil price eased.

Moving down

Persimmon moved further down, losing 6.06 per cent or 26p to 402.75p, ahead of the index reshuffle, which is expected to confirm the company’s departure form the FTSE 100. A "sell" note from Goldman Sachs also contributed to the slide in the stock.

"We downgrade Persimmon to Sell (from Neutral) and add it to our Conviction Sell List. We do not expect Persimmon to remain insulated from an accelerating housing downturn and potential land write-downs, despite our positive view of its disciplined management team and high-quality strategic land assets," the broker said, adding:

"We expect Persimmon’s 1H08 trading update on July 8, 2008 and its 1H08 interim results on August 21 to support our negative stance. Monthly releases on pricing expectations (RICS), pricing (Nationwide and Halifax), and mortgage approvals (Bank of England and BBA) should also support our view that the likelihood of write-downs has increased. In the 1990 downturn, a 1% fall in house prices led to a 3% fall in land values.

We expect further deterioration in house prices to feed through to lower land values (house prices -6.4% [year-on-year] in May, from -3.7% April and -1.5% March)."

Goldman also downgraded FTSE 250-listed Redrow, which was down 7.09 per cent or 14p at 183.5p.

"Given the market's aversion to house builders with high gearing, we expect Redrow to underperform in the current environment. In addition to strong operational gearing to an accelerating housing downturn, it is the most highly geared house builder on our estimates," the broker said, moving the stock to "sell" from "neutral".

Tesco failed to impress the market with its first quarter trading update, and lost 7.2p to 394.7p. Citigroup, however, played down the share price weakness.

"Tesco seems on track to deliver the consensus forecast of 3.5% UK LFL sales for 2008/09 given easing comps and improving weather. We see no reason to change our forecasts. The shares may be a little weaker this morning but we would view the shares below £4.00 as a buying opportunity," the broker said.