UK Market Wrap
FTSE 100 plunges despite interest rate cut and bank bailout plan
Dip your toes into this market, and they are likely to be bitten off! Yet another extremely volatile day in global financial markets today, with equities swinging wildly from negative territory to positive and back again. In the UK, the major indices plunged at the opening, taking cue from last night’s losses on Wall Street, combined with worries that pretty much the entire UK banking sector was going to be partially nationalised to stave off a broad based banking meltdown.
By lunchtime however, several of the UK focused banks witnessed a bit of a mini-rally as more details of a potential £50 billion capital injection by the UK Government helped support banks, and the Bank of England cut interest rates by 0.5% to 4.5%. The substantial interest rate cut was co-ordinated with 0.5% cuts in the United States and the European Union to 1.5% and 3.75% respectively. Yesterday, Australia cut interest rates by 1%.
The coordinated interest rate cuts initially sent shares in Europe higher and US futures soaring, but the party was over before it started as wider concerns about the size and length of any recession in the United States overshadowed attempts to boost confidence. The Dow Jones closed almost 200 points off, extending its losing streak to an eye watering 1600 points in five sessions!
By the end of trading, the FTSE 100 was off massive 5.7% to 4,340.
The biggest gainer of the day by a country mile was Halifax Bank of Scotland (LSE: HBOS) which at one point was up almost 60%, but finished up around 27%. The shares were buoyed by hopes that the proposed takeover of HBOS by Lloyds TSB (LSE: LLOY) will stain in its original form, which values HBOS at 220 pence per share. Lloyds TSB fell 8%.
While the ongoing story about HBOS-Lloyds TSB captures many headlines, the fate of Royal Bank of Scotland (LSE: RBS) also continues to dominate investors thoughts. Shares in RBS swung from a low of 70 pence to a high of 120 pence only to end the day where they begun – around the 90 pence level.
While the fate of the banking sector dominates headlines, the commodity sector continues to take an absolute pummelling! In fact, it is the mining constituents of the FTSE 100 and FTSE 250 that put in some of the day's worst performances, as metal prices plunge, and worries about a global recession increase concerns about demand for raw materials.
Xstrata (LSE: XTA) was thumped again, off almost 8% to 1285 pence, Rio Tinto (LSE: RIO) fell 10% to 2645 pence, Vedanta (LSE: VED) plunged 14% to 865 pence and First Quantum Minerals (LSE: FQM) dived 20% to 1246 pence, to name just a few.
Precious metals miners put in a more mixed show.
Randgold Resources (LSE: RRS) jumped 8.6%, moving with the gold price which raced back over $900 an ounce today, but Peter Hambro Mining (LSE: POG) slumped yet again, down 5.7% as concerns about proposed changes to Russia's mining laws outweighed a higher gold spot price.
Lonmin (LSE: LMI), the world's third largest platinum producer, slipped 3.3% while Fresnillo (LSE: FRES), the world's largest primary sliver producer fell 10% despite firmer silver prices.
Oil prices continued to come under pressure too, and ended slightly lower in US trading at $88/barrel. Not surprisingly, oil equities also had a hard go of it today. Dana Petroleum (LSE: DANA) fell 5%, BP (LSE: BP) shed 7%, Dragon Oil (LSE: DGO) dived 13% while Cairn Energy (LSE: CNE) fell 11%.
Sainsbury's (LSE: SBRY) reported third quarter results at the top end of analyst's expectations today, but ended the session down almost 15% after remaining cautious on its outlook, and subsequently after the market closed today, it was announced that Robert Tchenguiz had dumped 88 million shares - ouch.
British Airways (LSE: BAY) also chalked up another crap day, falling 5.6% to 120 pence. A drop in the oil price would 'normally' act as a buoy for airline stocks, but overriding concerns about a recession in the UK and US - and those transatlantic routes that generate the rump of its profits, continue to weigh heavily.
Aricom (LSE: ORE) came under pressure today after reporting that it would need up to $1 billion to fund the development of two iron ore mines in Eastern Russia. The price tag was higher than the market appeared to be expecting, and not surprisingly, there are concerns about how the company would secure finance in the current market conditions.
Also on the FTSE 250, restaurant chain Prezzo (LSE: PRZ) plunged 26% after announcing that takeover discussions for the company had come to an end due to the current difficulty for potential suitors to raise debt to fund acquisitions.
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