Market update - 16 June

The FTSE 100 rose in the morning, led up initially by Barclays, which announced plans to inject further cash to shore up its balance sheet without resorting to a rights issue. Keefe, Bruyette & Woods said: “This is a stronger message than the April update which, excluding BarCap, said the group’s prêt profit 'exceeded' the comparable period.”

The banking group performed well, rising 5.5 per cent to 335p as it said it was to place shares with outside investors, with several sovereign wealth funds rumoured to be interested. The top tier eased as the day wore on, and was down 1.6 points at 5801.2 at 11.50am.

Moving up

Eurasian Natural Resources Corporation rose strongly to overtake Barclays at lunchtime, up 6.96 per cent to 1413p following a note from ABN Amro. The Dutch broker upped its price target from £13 to £16.50 saying the stock “is worth a look again” ahead of the market’s ferrochrome price settlements for the third quarter.

Persimmon climbed after last week’s poor performance from the housebuilders. The stock rose 5.16 per cent to 432.75p as rumours that institutional investors were to step in and prop up the sector with a series of direct investments. The housebuilders on the FTSE 250 were also looking strong, with Barratt Developments topping the table, up 11.27 per cent to 96.25p.

On the FTSE 250, Misys was up following a “buy” recommendation from Seymour Pierce, which is anticipating a strong trading statement from the group on Wednesday. It rose 2.9 per cent to 158p.

“Obviously all eyes will be on the outlook statement; so far Misys has weathered the storm in financial services markets better than expected. This has been largely due to the already low expectations for growth, the company's focus on emerging markets and high levels of recurring revenue. Furthermore, it is our understanding that the group turnaround is progressing ahead of schedule. The shares have been volatile, trading in the range 140p-178p over the past three months, closing at 153½p on Friday. The stock is currently valued at 12.4x FY09 earnings, if we assume a successful conclusion to the Allscripts merger.”

Moving down

Unilever fell in the morning, retreating 3.69 per cent to 1515p following a bearish note from UBS, which cut its recommendation to a “sell”. The Swiss broker said in its report on the European food sector: “We believe Unilever deserves to trade at a discount to the others. Whilst its free cash flow is good (and a strong balance sheet means it has the potential to engineer a step-change improvement), it offers the lowest top-line growth (3- 5%), has the greatest exposure to the oil price, and, in our view, has the management team with the most to prove.” Cadbury was also hit by the note, falling 2.22 per cent to 637p.

British Airways was down after Goldman Sachs reviewed the airline sector. It was down 4.09 per cent to 240.25p.

“GS Commodity forecasts are for $150/bbl oil by year-end, while our Energy analysts’ scenario is for a possible spike as high as $200/bbl. At these prices, the shape of the industry would clearly change: it would contract, with fewer players buying fewer planes with fewer employees. Survivors will be those with the strongest balance sheets and liquidity. Our analysis indicates that in a $200/bbl oil price scenario, all airlines would be loss making, with some insolvent, and all balance sheets would be under extreme pressure. Consolidation and exits should allow prices to go up, but higher prices would likely choke some demand, threatening the LCC business model”.

Bluebay Asset Management fell to the bottom of the FTSE 250 after warning on profits. The fund manager plunged 15.15 per cent 280p.