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Market Report: US weakness gives sellers the jitters

Oscar Williams-Grut
Thursday 15 August 2013 23:53 BST
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There were few winners on the benchmark index as heavyweight healthcare companies and fears over tapering US stimulus dragged down the markets.

Morgan Stanley gave an "underweight" rating to the big pharmaceuticals AstraZeneca and GlaxoSmithKline, citing doubts over their drugs pipelines. Both companies have also had their Chinese operations investigated by the country's government, along with others in the sector.

GlaxoSmithKline was dealt a further blow by billionaire Warren Buffett, when the Sage of Omaha's investment company, Berkshire Hathaway, said it had reduced its stake in the drug maker. Glaxo dropped 24p to 1657.5p while AstraZeneca lost 56.5p to 3192.5p.

Already weak sentiment on the FTSE 100 was hit by a sell-off in New York, sparked by fears the US Federal Reserve may scale back its bond-buying programme and weak results from Wal-Mart and Cisco. The FTSE 100 closed down 104.09 points at 6,483.34.

Alastair McCaig, a market analyst at IG, said: "The cloud of US-tapering fears continues to hang over equity markets, comfortably outweighing the continuing trickle of encouraging European economic data."

He added: "With the likes of easyJet and Tui Travel being two of the top five fallers today, it does appear that traders have decided to take profits off the table following their good, first-half figures."

Tui and rival Thomas Cook caught the eyes of analysts at Jefferies. The broker said the pair looked to have 2013 "in the bag" with strong, recent trading updates from both. Things looked good for next year too, it said, with the travel sector "in a better state than for some years".

Jefferies reckons the two must look for self-help opportunities, with Thomas Cook ripe for further development. Jefferies raised its target price for both travel agents, while JPMorgan also upped its target price for Tui. Thomas Cook lost 12.5 to 146p, Tui was down 21p to 362.7p and easyJet crash landed 58p to 1252p.

Liberum warned of choppy waters ahead for the publishing and education group Pearson. The Financial Times owner had hoped that the introduction of new curriculum guidelines in the US next year would boost its education arm there, but analysts at Liberum think it is far from a done deal. They warned that the reforms were running into problems, reiterating their sell rating for Pearson, which fell 19p to 1313p.

There were a handful of risers on the FTSE 100. A better-than-expected update from Imperial Tobacco sent it to the top of the table, with investors buoyed by news of a slight improvement in sales – or at least a slowing of their decline. Oriel and Panmure both put out upbeat notes on the tobacco giant, with Damian McNeela at Panmure highlighting its announced re-entry into the e-cigarette market as harbouring strong potential. Imperial added 55p to 2209p.

BT also made early gains after finally agreeing a deal with Virgin Media to make its new BT Sport channel available to Virgin customers. BT fell 0.6p to 325.6p.

After the troubled Kazakh miner ENRC tumbled on Wednesday, sparked by a poor trading update, investors saw value and ENRC put on 0.8p to 230.1p. The Chilean copper producer Antofagasta fell after a downgrade from JPMorgan to neutral, ending down 41p at 930p.

Elsewhere in the sector, Canaccord Genuity reiterated a buy rating on the mining giant Rio Tinto, saying its chief executive Sam Walsh's cost-cutting drive was "shifting into high gear". The broker said the strategy was starting to affect margins sooner than expected, meaning Rio could lift its dividend by as much as 8 per cent. Rio was down 90.5p at 3,103p.

On the mid-cap index, the specialist chemicals company AZ Electronic Materials took a battering after tweaking its revenue forecast due to slower-than-expected growth in the second half. The FTSE 250 company lost 13.8p to 303.5p.

Avocet Mining saw its shares bounce after announcing a new plan that will increase gold production and lower costs at its flagship Inata mine. The shares closed up 1.5p at 14.75p.

On Aim, a buy rating for African Minerals from Canaccord Genuity, which praised the appointment of industry veteran Bernie Pryor as the miner's chief executive, failed to prevent an 11p fall to 208p.

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