Authorised and regulated by the Financial Services Authority

Possible low in sight as financials see dramatic action

11th July – Shares in London edge ahead but without conviction Yesterday’s M&A news in the US took some of the selling pressure off equities, but it is not at all clear that the downtrend is over for now. Early on there was buying in London, but this has again petered out to leave the FTSE 100 index up around 30 points. There are some bright spots, with selected rises in the mining sector on improved commodity prices, and the housebuilders have seen speculative support on hopes of more cash support to alleviate the gloom and talk that bargain hunters and vulture funds are circling. A big rise in the oil price overnight has helped the likes of Cairn Energy and BG but fuel users British Airways and Carnival are naturally weak.

For a change it has been a quiet results session, and the only statement of note comes from C&C, where revenue for the four months ended 30th June fell by 8%. There were mixed performances with a 10% fall for the Cider division and growth of 3% for Spirits & Liqueurs. It added that revenue in the half year to August was unlikely to match last year's level but improved operating margins during the period should offset this. All in all, it looks shaky to sa the least and we see more downside after another 85 fall so far today.

14th July – Sentiment changes on Alliance & Leicester bid news

After the panicky conditions of last week, the FTSE 100 index roared ahead after major news from the bank sector. Shares in Alliance & Leicester rose by over 50% mid-morning after it announced a possible bid worth 317p including an expected interim dividend. According to reports, there are suggestions that Abbey owner Santander has made the offer, which A&L says is at an advanced stage.

The news has set the bank sector alight with big moves in Barclays and Lloyds TSB. There was also support for financials after the board of the Federal Reserve, chaired by Ben Bernanke, voted to allow the New York Fed to lend to Fannie Mae and Freddie Mac should such lending prove necessary. If this is seen to put a cushion under the sector, we could be in for some major bull moves here.

Elsewhere, ITV was up 13% on reports of a possible bid from John de Mol, the co-founder of TV production company Endemol. Russia-focused oil group Imperial Energy also announced it had received an approach which may or may not lead to an offer being made for the company, and the shares rose by almost a quarter.

15th July – Sellers again dominant on more concerns over the financial sector

There was some hope yesterday that the bid for Alliance & Leicester together with the funding packages in the US for the two GSEs might change sentiment towards financials. In the event, the sector rose then fell and many shares are down again so far today as investors focus on the overall health of the US mortgage market. Footsie is down over 70 points mid-morning with Royal Bank of Scotland down 5% and Barclays not far behind.

Alliance & Leicester is also down 4% after several potential bidders ruled themselves out. Press reports suggested that Clive Cowdery and JC Flowers had made it clear neither was likely to enter the fray. Lloyds TSB was expected to review its options but an approach here would almost certainly be precluded on competition grounds. It may not be the end of the story, but we would want to see more downside before the risk/reward made it attractive to buy A&L.

Elsewhere, the main statement today came from Cable and Wireless, which left its underlying earnings guidance for the year to March 2009 unchanged at between £702m and £725m, an increase of between 16% and 20% on the previous year. The overall statement was reasonably solid and the shares have edged up, but the sector still has a dull feel to it, so we would stand back here for now.

In the miners, Kazakhmys has played down talk it is to merge through a reverse takeover with Metalloinvest, which is run by Alisher Usmanov, who owns a stake in Arsenal Football Club. The shares spiked up yesterday, and technically it looked like some mischievous rumour making, so until the trend and buying volume get back to bullish, the shares look likely to drift down.

16th July – Another bout of selling sends the bank sector down in London

Once again there were early signs of equity buying on value grounds, but this soon petered out as the bank sector was hit hard on worries of more credit crunch writeoffs. The FTSE 100 index was 20 points mid-morning, and the culprits were led by HBOS and Royal Bank of Scotland. Another big faller was Wolseley which dropped 5% on a poor update. Trading profit dropped 28% in the eleven months to June, and it expected conditions to get worse. Although group revenue, including acquisitions, was up 1% the final dividend was axed and the outlook continues to look gloomy, so short positions continue to be recommended.

Over in the property sector, market leader Land Securities dropped almost 3% as it said progress in Q1 had been at a slower rate and added that it was currently assessing proposals for its Trillium business. There is a fair discount to net asset value here, but this has been the case for a while and the downtrend remains intact.

One share that looks unfairly tarnished is Icap, which again pleased the market with a solid statement. It said group revenue, excluding the recent Link acquisition, rose 15% in Q2, with the growth in electronic broking especially strong, particularly in foreign exchange. The shares are up 4%, and if the market turns, these should be in the forefront of any bull move.

There was also good news from JD Wetherspoon, which said it had performed better than expected for the 11 weeks to 13th July 2008 with like-for-like sales up by 0.4%. It is early days here, but we could be at a turning point after the 7.7% rise so far today.

17th July – Early rally pushes Footsie up in the wake of US gains

We saw the biggest rally for many months yesterday in the US, with financials leading the way at the expense of oil stocks, which fell as crude dropped for the second day. That theme has continued today with the FTSE 100 index up over 90 points at one stage although it has drifted back a little since then. Barclays, Royal Bank of Scotland, Lloyds TSB and Standard Chartered were all big winners early on, but there were even bigger rallies in the beaten down leisure and housebuilding sectors, with Taylor Wimpey, Persimmon and William Hill all showing major rises. If buying volumes stay high, the we may have seen an important low for some stocks, but there are still likely to be casualties dotted through these sectors.

There was a positive reaction in the retailing sector to the news that Kingfisher had announced the appointment of DSG International's finance director Kevin O'Byrne, who will succeed Duncan Tatton-Brown, from 1st October 2008. The shares were up a healthy 8% early on but profit taking has halved the gain, and we would not chase these for now.

Elsewhere, Rolls-Royce rallied on reports that it is to expand its nuclear business, adding that orders from leasing companies AWAS and LCAL for Trent engines would be worth nearly $400m. Our feeling is that Rolls Royce has much more to do to change the immediate outlook, and for now these shares should also be left alone.

Research done by Blue Index, the CFD, Online and Forex Trading Experts

17/07/2008
 

< back