Market update - 3 November

The FTSE 100 was up 16.19 points at 4393.53 and the FTSE 250 was up 166.84 points at 64489.42 at 12:30 pm. Mining stocks led the market higher as metals prices continued to rise. Kazakhmys was the strongest on the benchmark, up 15.94 per cent or 45.5p at 331p, while Vedanta Resources, at third place on the FTSE 100 leader board, gained 10 per cent or 85p to 935p.

Moving up

Stronger oil prices aided Tullow Oil, which was up 6.87 per cent or 36.5p at 560.5p, and Cairn Energy, which gained 5.74 per cent or 92p to 1696p.

A disappointing update failed to do any damage to HBOS, the mortgage lender which was up 3.63 per cent or 3.7p at 103p following reports that a major European financial services group was preparing a bid to counter Lloyds TSB’s government-backed merger offer. Lloyds, which also issued an update this morning, was down 3.74 per cent or 7.4p at 190.4p.

On the second tier, the outlook for interest rates continued to drive the housing sector. Analysts anticipate the Bank of England to cut the UK base rate by up to 50 basis points to help unclog the gummed up mortgage market. The expectations forced a fresh round of short covering, which sent Taylor Wimpey to 12.5p, up 25 per cent or 2.5p. Barratt Developments was up 16.56 per cent or 12.75p at 89.75p and Persimmon climbed to 317.75p, up 5.92 per cent or 17.75p.

Moving down

Tesco was down 3.59 per cent or 12.2p at 327.2p after Societe Generale moved the stock to “sell” from “hold”.

“Tesco faces a weakening UK grocery market, with the ebb tide of easing inflation set to reveal poor underlying volumes. Tesco’s UK sales growth has become increasingly dependent on high food inflation. Back in the first half of 2006 inflation was sharply negative, and the whole +6.7 per cent like-for-like sales growth was by driven by higher volumes. In the first half of this year we estimate that [the] +3.7 per cent like-for-like [growth] was entirely inflation driven, with volumes broadly flat. Food price inflation peaked in July and is set to fall sharply so Tesco’s next few UK like-for-like sales announcements are likely to be sharply down,” the broker said, adding:

“There are also problems brewing for overseas businesses: exposures to foreign mortgage debt in Poland; austerity measures in Hungary; a likely fall in consumer spending in Korea in response to a slowing export driven economy. With increasing demands on cash, Tesco is suspending share buybacks to stay within its £8bn debt target.”

Also on the downside, Barclays continued to trade lower, losing 4.97 per cent or 8.9p to 170p, despite some supportive comment from UBS, which said that unfavourable comparisons of bank’s plans to raise cash from the Middle East with the funding on offer from the UK government “miss the point”.

“The Barclays business model (strong growth in IRCB [international retail and commercial banking] operations and investment banking) is incompatible with the UK government as [an] investor whose agenda is necessarily domestic and focussed on de-leverage” the broker said.