Market update - 13 June

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The FTSE 100 was down 49.4 points at 5741.1 at 11:13 a.m. on Friday. HBOS remained safe in its spot at the top of the leader board – the stock was up 11.75 per cent or 33.25p at 316.25p after the Financial Services Authority announced the introduction of new a set of rules to monitor short selling positions in companies undertaking rights issues. The move comes after the HBOS share price slipped below 275p new issue offer price earlier this week.

Moving up

The FSA move, coupled with news of near perfect demand for the UBS rights issue, also cheered the wider banking sector. Alliance & Leicester rallied to 317.75, up more than 4 per cent or 12.25p, and the Royal Bank Scotland was up 6.5p at 235.5p. FTSE 250-listed Bradford & Bingley was also firm and rose by 2.5p to 75p.

Johnston Press, which like HBOS is trying to raise money via a new issue, was cheered too. Reports of a possible bid from Usaha Tegas, which acquired 20 per cent of the company last month, also boosted the stock, which swung to the top of the mid-cap index, up 26.29 per cent or 15.25p at 73.25p.

Housing builders continued to recover from earlier lows. Many analysts believe that the sector will host the next round of rights issues as companies move to beef up balance sheets amid mounting housing market turmoil.

Persimmon was up almost 7 per cent or 25.5p at 398.25p, Barratt Developments gained 12.46 per cent or 9.5p to 85.75p, Bovis Homes was up 11.35 per cent or 39.5p at 387.5p and Taylor Wimpey was stronger by almost 20 per cent or 11.75p at 72.75p.

Also in the housing sector, Mark Stockdale, the UBS analyst who sparked a sell off last week, published a new report analysing the "Armageddon scenario" and, contrary to some recent market speculation, ruling out debt for equity swaps.

"We now run our worst case scenario analysis. We assume: (1) prices down 20% & volumes down 40% by end of FY09 from FY07 base, (2) zero sector EBIT in FY09E (despite social housing /cost cutting) (3) no dividends in FY09E (4) no land replacement & (5) we model the impact on gearing of land write downs of 20-50%," Mr. Stockdale said, adding:

"Share prices, in our view, correlate to tangible NAVs after a 50% land write down. We find it hard to believe this could occur given the length of land banks and the use of strategic land…We point out that cash generation 2008-2009E could reduce debt/land creditors from £6.3bn end FY07 to £2.9bn end FY09E.We expect that banks would waive covenants as they are broken, agree new price and covenant packages for existing debt and support house builder cash generation. We cannot rule out rights issues or strategic investors but we do rule out debt for equity swaps/bankruptcy."

Moving down

The mining sector came of the rally path and proved a drag on the FTSE 100. ENRC was the worst off, losing 64p to 1296p.

Lonmin was down 113p at 3011p and Kazakhmys lost 52p to 1545p.

On the FTSE 250, Rightmove was down 4.25p at 328.75p after UBS introduced a short term sell rating on the stock.

"Rightmove could jeopardise its dominant market position if it increased prices in the face of very difficult market conditions for its customers, in our view. With conditions being the toughest for agents for over 15 years, we expect some could move to cheaper competitors if their hand was forced through price rises. We do not believe management would take that chance given the temporary nature of the housing market difficulties but it does present significant risk to 2009 consensus," the broker said, adding:

"We believe consensus will have to adjust downwards materially, largely on the back of reduced ARPA growth assumptions as well as estate agent office closures. We therefore establish a Short-term Sell rating with a likely catalyst for consensus cuts being the interims in August and the Q3 IMS."