Tuesday 2 September - 4pm update

It's not just the pound that is feeling the heat from the credit crunch and looming recession — the stock market, in case you hadn't already noticed, is also suffering.

Morgan Stanley says demand for ­equities has fallen to its lowest level in six years and is likely to get worse.

The US broking house calculates that gross demand this year will slide to a low of £17 billion (£9.5 billion), even though overall gross supply is not dissimilar to last year and running at between £50 billion and £55 billion.

“We believe demand will shrink due to falling mergers and acquisition and lower buybacks and dividends,” says Graham Secker at Morgan Stanley.
Even with fewer flotations and secondary issues, this will be a record year for gross share issues with the market having already digested £18 billion worth of rights issues. But after a record year of mergers and acquisitions in 2007, this year is set to be decidedly weaker given the credit crunch.

“We forecast M&A-related demand for equities will fall to £24 billion this year, down from £61 billion in 2007. Demand for equities is also under pressure from weaker dividends and an expected drop of 43% in share buybacks,” Secker adds. He says net demand for equities will be just 1% of total stock market values and therefore of little support. But Morgan Stanley concedes this is not always a good indicator of overall stock market performance.

Meanwhile, investors appear to have got it into their heads that the Government's attempts to stimulate the housing market, including a year's freeze on stamp duty on properties up to £175,000, would leave consumers with a bit of spare cash in their pockets. That enabled some consumer-related issues to claw back recent losses.

Suffolk-based brewer Greene King rose 57½p to 590p despite a drop in half-year profits. The brewer of Old Speckled Hen expects to meet full-year targets. That cheered the likes of JD Wetherspoon, up 25p at 281p, Enterprise Inns, 18p to 314p, Mitchells & Butlers, 22p at 303p, and Punch Taverns 21¾p at 316¾p.

Retailers have also been heavily sold, and were today being chased higher on hopes of a consumer-led revival. Next climbed 65p to 1138p, along with Kingfisher, 5.6p to 140.7p, and bookie William Hill, 18½p to 298½p.

Share prices generally were forced to trade in a narrow range for much of the day. It took an opening surge on Wall Street this afternoon on the back of a cheaper oil price and commodity prices to show London in a positive light. Even so, it was a far from convincing performance, with both the miners and oil companies continuing to perform below their best.

The FTSE 100 index clawed back early losses to trade 19 points higher at 5621.8. In New York the Dow opened 223.3 higher at 11,766.9 as investors cheered the lower oil price, which must be good news for the US economy. British Airways was a bright spot, rising 13¼p to 275p as a reflection of the cheaper oil price. Its fuel bill is set to grow from £1 billion to £3 billion this year.
Package holiday group Thomas Cook, which also benefits from cheaper oil, added 17¾p to 247½p, while rival TUI Travel was up 11½p at 227¾p, cruise ship operator Carnival 151p at 2042p, and easyJet 33¼p at 375¾p.

The miners were in retreat, worried by evidence of a slowdown in the world economy and, therefore, less demand for raw materials, which are ticking cheaper.

Rio Tinto fell back 222p to 4788p, Anglo American 128p to 2652p, and BHP Billiton 67p to 1581p. Oil companies were hit by the lower price of crude, with BG Group losing 51p to 1114p and Tullow Oil shedding 43p at 748p. But running against the trend was Bowleven, up 12p at 265p, as it may revise its resources at the Isongo discoveries in Cameroon.