Market update - 11 July

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The FTSE 100 was down 48.7 points at 5358.1, in official bear territory, at 12:05 pm on Friday. The London benchmark was under pressure from the retail sector, which offset strength among the miners following disappointing weekly sales figures from John Lewis. The department store reported a 1.3 per cent year-on-year decline in sales, the eight decline in the past nine weeks.



Reacting to the news, Howard Archer, the chief UK & European economist at Global Insight, said the figures "add to the evidence that consumers are now reining in their spending".

"Specifically, John Lewis department stores sales fell 1.3% year on year in the week to 5 July. While this was much less than the 8.3% year-on-year plunge in sales seen in the previous week, it nevertheless marked the eighth year-on-year fall in sales in the past nine weeks. Consequently, John Lewis department store sales were only 0.5% higher year on year during the 23 weeks to 5 July - and this comparison is steadily trending lower and seems set to fall into negative territory before long. John Lewis acknowledged that "it is definitely tough out there," he said, adding:

"We suspect that the reduced year-on-year fall in John Lewis department store sales in the latest trading week may well have been a consequence of increasingly pressurized and price conscious consumers looking to concentrate their purchases when there are genuine bargains available in the clearance sales. We expect this to be an increasing feature of consumer spending going forward and we also expect many consumers to look to economize by trading down their purchases eg through buying more own label brands of goods and food rather than more expensive branded products."

"John Lewis department store sales are generally seen as a good bellwether for the health of consumer spending. Consequently, ongoing evidence of softer sales clearly points to consumers reining in their spending in the face of squeezed purchasing power and other serious pressures. It also follows on from recent very disappointing news from Marks & Spencer."

As a result, Marks & Spencer, the retailer which was buoyed by speculative support last night, was down 7p at 233.25p. Kingfisher, which was out of favour following negative broker comment and mounting investor fears for the economy, continued to trade down and lost 4.4p to 94.6. Fashion retail chain Next was down 20.5p at 875p.



Moving up...

The mining sector dominated the FTSE 100 leader board thanks to firmer metals prices. Bargain hunting investors keen to capitalise on recent weakness also boosted the sector and the Eurasian Natural Resources Corporation claimed first place on the index, up 59p at 1106p. Ferrexpo gained 8.25p to 320p and Kazakhmys was up 5p at 1415p.

The tension between the US and Israel and the Iranians kept the oil price firm. As a result, Cairn Energy rose to second place on the FTSE 100, up 79p at 2821p. Tullow Oil was up 22.5p at 864.5p and BG climbed by 24p to 1160p.

On the FTSE 250, Taylor Wimpey was up 17.14 per cent or 6p at 41p after Building magazine reported that the company was looking to secure funding private equity. The report suggested that private equity may snap up as much as a third of the company and, in return, help the company avert the need to raise £500m through a share placement in volatile markets.

The news also cheered peer Barratt Developments, which gained 5.75p to 72.75p.



Moving down...

Beside the retail sector, media stocks weighed on the London benchmark on the back of mounting concern about an advertising slowdown as companies prepare for a difficult economic climate by cutting back on spending. ITV was down 1.1p at 39p and Pearson lost 17.5p to 594p.

Thomas Cook was down 2p at 181.6p after cancelling the merger of its German airlines business with Air Berlin. In reaction, Investec said the news was no surprise given the regulatory delays and financial difficulties are Air Berlin and reiterated its positive stance on the stock.

"Today's announcement should come as no surprise to investors: continual regulatory delays and financial concerns at Air Berlin made the deal increasingly less likely. Thomas Cook management had also clearly been pursuing other options for some time. The German airline market is fragmented and TCG would ultimately like to consolidate it while also making its own business more flexible by offloading aeroplanes to a third party," the broker said, adding:

"We had not included the Air Berlin merger in our estimates and there we therefore make no changes to our operating profit forecasts."

Also on the downside, among smaller companies, Oxford Biomedica was down 56.76 per cent or 10.5p at 8p after the company announced a setback for its TroVax therapeutic cancer vaccine.

Reacting to the news, Panmure Gordon moved the stock to "sell".

"We are downgrading Oxford BioMedica to a Sell on the news that the phase III trial TRIST will not yield positive result on the primary endpoint. The trial DSMB [Data Safety Monitoring Board] have recommended that the dosing is discontinued although the trial will continue to run under amended protocol," the broker said, adding:

"The probability of TroVax reaching the market is greatly reduced and we are left with no option than to assume failure in renal cancer, although there is still scientific hope in areas such as colorectal cancer. Our new price target is based on the company's forecast 2008 year end cash position £32.2m, which equates to 6p per share."

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