Market update - 27 February

The FTSE 100 was 83.4 points behind at 3832.22 while the FTSE 250 fell back to 6034.6, down 89.1 points, at around 11.58am.

There was no sign of last night’s cheer this morning, with investors selling out after Lloyds Bank Group – down 22 per cent or 16.5p at 58.5p – posted full year results, but failed to confirm the extent, or the cost, of its participation in the Government’s asset protection scheme. The lender, which said its HBOS unit had slumped to a £10.8bn loss last year, was expected to publish the details this morning, but talks with the UK Treasury are ongoing and the bank said it would update the market in due course.

The wider sector also fell back, with Royal Bank of Scotland shedding 13.7 per cent or 4p to 25p and Barclays losing 10.7 per cent or 12.1p to 100.9p.

Moving up

There was little activity on the upside, with only a clutch of miners and defensive stocks in the pharmaceutical sector rebounding from last night’s lows.

Xstrata was the strongest, gaining 2.9 per cent or 19.5p to 674p, after Exane BNP Paribas switched its stance to “outperform” from “neutral”. UBS also weighed in, increasing its earning estimates for 2009 by 102 per cent.

“[This is] due to a combination of lower costs at the copper, zinc and alloys division, and forward coal sales at prices above our forecasts,” the broker said, but stuck to its “neutral” recommendation on the stock.

“Xstrata is the most leveraged of the diversified miners, and would be our preferred stock in a recovering commodity price environment. The [recent] rights issue does dampen this leverage to a certain extent. However, we still expect some near-term weakness in copper and thermal coal spot prices (two of Xstrata’s key earnings drivers), which is likely to keep the share price performance capped,” UBS added.

Moving down

Man, the London-based hedge fund group, was unsettled, losing 7.2 per cent or 13.4p to 170.7p after Morgan Stanley warned of yet more pain for the hedge fund industry.

“[The] hedge fund redemption cycle isn’t over – whilst we hope the large initial wave of European [fund of funds] outflows is behind us, we expect a catch-up of redemptions from US institutions in the first half of 2009,” the broker said,

“We expect [assets under management at hedge funds] to fall 50 per cent from $1.93 trillion in the first half of 2008 to our base case of $950bn in 2009, which entails a further 15-30 per cent [of] redemptions after 20 per cent in the second half of 2008.”