Market update - 2 September

The FTSE 100 was up 8.6 points at 5611.4 and the FTSE 250 was up 153.8 points at 9563.3 at 11.48am this morning. The London market gathered pace as the oil price eased back – commodity traders banked profits as Hurricane Gustav weakened, sending the cost of a barrel of crude below $105, almost $10 off the closing price last week. Travel-related stocks were the most prominent beneficiaries of the change and Thomas Cook gained 6.96 per cent or 16p to 245.75p, claiming first place on the FTSE 100 leader board. British Airways advanced to 277.5p, up 15.75p, and TUI Travel was firm at 227.75p, up 11.5p.

Moving up

Consumer stocks were also cheered by the weakness in the oil price, drawing strength from its implication for domestic inflation – investors bought stocks like Next, the fashion retail chain which gained 59p to 1132p, and B&Q-owner Kingfisher, which added 6p to 141.1p, on hopes that cheaper fuel will free up cash among stretched consumers.

Sentiment was also helped by Government moves to kick-start the ailing housing market, including raising the threshold for stamp duty on home purchases to £175,000 from £125,000 for a year. This caused a bear squeeze in the heavily shorted housing sector, sending Persimmon up to 423p, up 9.8 per cent or 37.75p, and Taylor Wimpey to 61.5p, up 9.82 per cent or 5.5p.

The cheer in the market was not mirrored in analysts’ assessments, however. Howard Archer, chief UK and European economist at Global Insight, for example, welcomed the new measures but said that they will probably have a “very limited overall impact” in supporting the housing market.

“In particular, still stitched affordability ratios and very tight credit conditions seem set to exert substantial downward pressure on housing market activity and prices for some time to come. In addition, heightened consumer concern about the economic outlook and rising unemployment will weigh down on the housing market. Furthermore, if potential house buyers expect house prices to continue to fall markedly over the next year or so, there is little incentive to buy a house in the near term, even if they save the 1% stamp duty,” he added.

Moving down

The improved commodity price outlook failed to impress the heavyweight oil & gas and mining sectors. As a result, Tullow Oil, the oil & gas explorer and producer, slipped to the bottom of the FTSE 100, down 5.25 per cent or 41.5p at 749.5p. Anglo American, the South African mining group, was down 132p at 2648p and BHP Billiton eased back to 1585p, down 63p.

Lonmin, which this morning resumed its campaign to fend off Xstrata’s hostile bid, was marginally better, up 3p at 3433p, while Xstrata lost 105p to 2817p.