Market update - 26 June

The FTSE 100 was down 70 points at 5595.1, while the FTSE 250 was down 88.7 points at 9232.5 at 11.52am today.

House builders were weak after Credit Suisse urged investors to "avoid the UK housing sector".

"The starting point for our continued bearishness is our revised base assumptions for the industry in 2008 and 2009. For 2008 we now expect price declines of 10% and volume declines of 30%, whilst for 2009 we expect prices and volumes to both fall 10%. Our thoughts on volumes are influenced by the continued appalling mortgage approvals data (down 58% in May) whilst we suggest that a reversion to trend prices implies a 20% decline. As a consequence we have cut our [earnings per share] forecasts for next year by on average 52%," the broker said, adding:

"As a consequence of such house price declines we now expect material declines in land prices, and suggest that if past trends are repeated we can expect land price deflation of about 50%. Such price declines would likely result in asset impairments and deterioration of [net asset values]. We suggest that Barratt's NAV could decline 64%, while Taylor Wimpey and Persimmon could experience negative revisions of 46% and 22% respectively"

The assessment sent Persimmon down by 21p to 318p. Barratt Developments lost 4p to 67.25p, Taylor Wimpey was weaker by 1p at 55.55p and Bellway lost 19.75p to 451.25p.

Moving up

Firmer metals prices gave strength to the miners and Anglo American claimed first place on the FTSE 100, up 60p at 3346p.

Lonmin, at second place, was up 48p at 3115p.

The oil price also recovered after showing some weakness yesterday. As a result, BP rose by 3p to 576.75p and Royal Dutch Shell was stronger by 5p at 1989p.

On the mid-cap index, bid speculation was evident around Inmarsat, the satellite technology company which was up more than 8 per cent or 39p at 525p. Traders cited rumours that a 600p per share proposal may in the offing. Despite the strength, some market sources remained sceptical, citing the string of past rumours.

Moving down

The London Stock Exchange returned some of last night's gains and lost 6.51 per cent or 62p to 890p. On Wednesday, the company was buoyed by speculation of a bid from Chicago's CME, and a possible strategic partnership with Qatar. News from the company this morning that it was entering into a new pan-European equities trading platform joint-venture with Lehman Brothers failed to impress the market.

Thomson Reuters was down 77p at 1362p after Morgan Stanley, while maintaining its "underweight" rating, reduced its target price for the stock to 1280p from 1420p.

"What troubles us? Contrary to [Thomson Reuters], we expect consensus downgrades for Reuters Financial organic revenue growth for 2009 (we forecast -2.8%), and potentially 2010 (0.8%), could cast a pall over the shares," the broker said, adding: "Our negative growth forecast is predicated on the ongoing retrenchment in investment bank headcount and market data spend. However, TR argues this time is different. It believe Reuters will avert negative growth in 2009, unlike the ‘perfect storm' of 2001-02, which saw recurring revenues drop by 4% in 2002 and 10% in 2003 in an ex Internet boom world. Catalysts? After a decent 2Q (due in July), we think newsflow on Reuters Financial is likely to turn negative in 2H."

BSkyB was down 20.5p at 474.25p after JP Morgan moved the stock to "underweight" from "overweight".

"We think high-margin advertising revenues could slow given the deteriorating macro environment. Further, on our analysis, high margin revenue streams are underperforming," the broker said, adding:

"For example, Multiroom and HD net adds have slowed recently. We see risk of increased investment or lower prices/bundling discounts for high incremental margin products."

A note from JP Morgan also hurt Rolls Royce, which was down 16.25p at 336.75p.

The broker reduced its target price for the stock to 325p from 425p, noting that the current levels, the shares are "still slightly expensive for near-peak cyclical earnings, impaired earnings quality and mid-single-digit growth, due to slowing aftermarket growth, worse mix and dollar and commodity cost headwinds."

In the banking sector, Lloyds TSB was down 13.5p at 315p as the market continued to speculate about a bid for Deutsche Postbank or Dresdner Bank.

The remainder of the sector was also weak as investors took profits after yesterday's strong run and Barclays was down 19.25p at 311.75p.