Afternoon:
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Thursday 11 September - afternoon update
A sharp drop in the price of raw materials has meant mining companies suffered their biggest monthly fall in 11 years during September, and the third-biggest monthly fall on record.
Broker Cazenove believes the selling has been overdone, and today set about making its case to convince clients to plough more money back into the sector. It points out that earnings momentum for most of the miners has actually improved, with the decline in metal prices being more than offset by producer currencies, including sterling.
As the copper price starts to find a floor, the market's focus will return to the sector's attractive cashflow profile, particularly among the bulk commodity miners which are beginning to reap the rewards of the huge price increases seen at the end of the first half.
This should help curtail their recent underperformance and reverse it as the sector moves into 2009, says Cazenove. Among the diversified miners, it has an outperform rating and 1430p target on BHP Billiton, down 23p at 1362p. It also has outperform ratings on Anglo-American (2245p), up 44p at 2239p and Vedanta Resources, 46p cheaper at 1467p (1522p).
An outperform rating is also awarded to Ferrexpo, 0.2p better at 165.2p (167p target) among the single commodity mines. Ferrexpo yesterday lost its place as a constituent of the Footsie 100 index because of the poor performance of its shares of late.
Rio Tinto, down 101p at 4050p, has taken a 14.9% stake in Kalahari Minerals, 2¼p better at 36½p, with the purchase of 24.8 million shares.
Weakness in banking and retail left the FTSE 100 down 84.9 to 5281.3, its lowest level since July, while the broader FTSE 250 slumped 157.7 to 8809.5. Over on Wall Street this afternoon, Lehman Brothers teetered on the brink after its share price virtually halved to $4. Rival Merrill Lynch was also trading at record lows. The Dow slumped 98.7 to 11,170.2, after the US trade deficit grew to its widest in 16 months.
Back in London, high street banks came under the hammer after the Bank of England said it would next week be announcing details of a permanent successor to its special liquidity scheme. The new scheme would not provide them with long-term funding. Note the price of HBOS, down 16¾p at 283p. It hovers 8p above July's £4 billion rights issue price, having touched 336¼p last month.
There were also losses for Barclays, down 14½p at 332p, and Lloyds TSB, 13¼p off at 281¾p.
ITV, up 2p at 50.8p, may have lost its place in the Footsie 100, but the speculators remain convinced that a bidder will emerge for the independent television broadcaster. Their hopes have been boosted by the news that ITV's former boss Charles Allen has joined Virgin Media, which failed to merge with ITV two years back.
Enterprise Inns, down 4½p at 229¾p, has also lost its Footsie 100 status. Goldman Sachs has lowered its target price on the pubs operator from 240p to 230p and cut its profit forecast for this year and next to reflect the level of support it must offer its tenants in the face of a slump in beer sales. Goldman has removed it from its conviction sell list but rates the shares a sell overall.
Internet security software provider Autonomy, which has won promotion to the top flight, has seen Goldman Sachs raise its target from 1410p to 1500p and says the recent pullback in the shares presents a good opportunity to buy. Autonomy fell 12p to 1030p.
There is not much for retailers to cheer these days. Even John Lewis admits times are tough. Results from Home Retail, which owns Argos and Homebase, were given the thumbs down with the shares falling 15½p to 226¼p. Supermarket chain William Morrison lost 17½p to 252¾p. Kingfisher shed 10.5p at 127p, while Carphone Warehouse dropped 8.6p to 183.7p after losing its place in the Footsie.
