Market update - 19 June

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The FTSE 100 was up 21 points at 5777.9 at 11.19am on Thursday. A spike in retail sales figures and strength among the miners and in the oil & gas sector kept the London benchmark firm, offsetting the impact of fresh write-downs at HBOS, the country’s largest mortgage lender.

Moving up

Figures from the Office of National Statistics, released this morning, reveal that retail sales grew by 3.5 per cent in May, the fastest monthly rate since the series began in 1986. The news came as a surprise to market watchers, who were anticipating a dip of 0.1 per cent. Howard Archer, chief UK and European economist at Global Insight, summed up the mood – he called the figures "absolutely astounding, even allowing for the fact food and perhaps the better weather lifting clothing sales were major factors."

"The data seems totally at odds with the survey evidence and with consumer confidence standing at an 18-year low," he said, adding:

"Although the CBI and BRC surveys had indicated there had been some pick up in retail sales in May after muted performances in April and March, they did no suggest that growth was anything like this. Furthermore, the Bank of England's agents' reported in June that consumption growth had eased further, and was at 'its weakest pace the autumn of 2005'."

The data lifted Marks & Spencer, which was up 5.5p at 346.75p, Tesco, which gained 6.1p to 387.4p, and Kingfisher, which edged up by 1.1p to 118p.

The price of crude, while off recent highs, was firm this morning and drove Cairn Energy to second place on the FTSE 100 leader board, up 86p at 3308p. Cairn was also boosted by Goldman Sachs, which published an oil sector review today. The broker moved its recommendation on the stock to "buy" from "neutral", citing the company's oil price exposure and acquisition potential.

"We continue to believe the key to the long-running rally in oil prices has been the rise in long-dated forward oil prices. As evidence mounts that supply is struggling to grow, oil markets continue to look for the price needed to lower demand growth down to the level of available supply," Goldman said, adding:

"We reiterate our bullish call on the Energy sector in Europe based on strong expected EPS growth and free cash flow generation for the integrated oils. We continue to have a positive stance on E&P companies due to good visibility on revenue growth and M&A potential."

On the FTSE 250, Go-Ahead claimed pole positing, rising by 14.51 per cent or 221p to 1744p, after positing a bullish update.

In swift reversal of fortunes, Redrow climbed to second place on the mid-cap leader board after Citigroup upgraded the stock to "buy".

"…with current share prices effectively assuming a 30% fall in house prices and no improvement in the medium term. This effectively implies land is worth a negligible amount. Even at break-even, the sector should generate cash over the next few years," the broker said.

Citi also set a "buy" rating on Bovis Homes, which was up 2.25p at 345p.

Moving down

HBOS slumped by 4.63 per cent or 14.75p to 304p after revealing a fresh £1bn write-down from its Treasury trading book. The shares suffered as brokers expressed scepticism at the bank's expectation of a 9 per cent decline in house prices this year – Citigroup pointed out that, with house prices down 5 per cent in the last two months, HBOS's estimate appeared somewhat optimistic. Citi anticipates a "further significant deterioration" in mortgage credit quality as the year progresses. "We now note that HBOS describes unsecured impairment trends stable rather than improving," the broker added.

The news dampened sentiment in the wider banking sector and Alliance & Leicester was down 16p at 306.75p. Barclays was down 7.25p at 319p, Lloyds TSB was weaker by 7.25p at 334p and Standard Chartered was down 23p at 1527p.