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Market report: The City gave an initial lukewarm response to the Chancellor's Pre-Budget Report
Mickey Clark24 Nov 2008
Market report - Monday Update: The City gave an initial lukewarm response to the Chancellor's Pre-Budget Report. He blamed the recession on unprecedented circumstances within the global economy and insisted he would take all steps needed to revitalise the UK economy.
He also called for more effective regulation of overseas banking in places such as the Isle of Man and Channel Islands.
As he stood up to make his speech, the FTSE 100 was 282.5 higher at 4063.4. Within minutes it had improved to stand 301.2 higher at 4082.17. But it still has a lot of lost ground to make up, having dropped by almost 11% last week - the third-worst performance on record. But turnover had also slowed to a trickle. By late afternoon just 1.55 billion shares had changed hands, half the level of trading on Friday.
This afternoon Wall Street reflected events in London with investors expressing satisfaction with the rescue plan for one of the world's biggest banks. The Dow climbed 303.06 to 8349.4.
The US government has agreed to take a $20 billion stake in Citigroup as well as guarantee hundreds of billions of dollars worth of toxic debts - in the hope that it won't go the same way as Lehman Brothers and Bear Stearns.
News of the proposed £1.8 billion rights issue from Standard Chartered dragged its shares 45½p lower to 714p. The terms are 30 for 91 at 390p. The bank's largest shareholder, Temasek, says it intends to take up its rights and is acting as underwriter.
The news failed to undermine the rest of the sector after Fox-Pitt Kelton raised its rating on the sector from underweight to market weight. The broker reckons the time is right to take a positive view of bank shares, which are currently trading at their cheapest level for 20 years on price and book values.
"There are plenty of potential risks around to keep cautious investors on the sidelines, and absolute valuations could fall further," the broker said. "But the worst of the relative falls must be almost over."
Current prices discount the likelihood of effective nationalisation. The broker is maintaining its outperform ratings on Barclays, up 13.7p at 146.9p, with a target of 165p, and RBS, 2.5p dearer at 49.9p, with a 115p target, while upgrading ratings on HBOS, 6.9p better at 80.2p (90p target), and Lloyds TSB, 16.3p higher at 141p (155p), from underperform to in-line. "We believe the UK banks can get through the recession without further rights issues", it adds.
Centrica was unmoved on 267¾p, despite the shares going ex-rights. Last month Centrica announced terms of a fully underwritten £2.2 billion rights issue on the basis of three for eight at 160p. It wants the money to buy a 25% stake in nuclear power generator British Energy. The nil-paid shares opened at 87p.
ING appears to have fallen behind the curve in the mining sector. It has cut Xstrata, up 122p at 777p, from 3800p to 1100p, and Anglo American, up 193p at 1325p, from 3525p to 1050p and BHP Billiton, 144p dearer at 941½p, from 1950p to 925p.
Citigroup has raised its rating on British Land, up 27¾p at 490¾p, from hold to buy, but has trimmed its target price from 830p to 680p. The broker said this reflects BL's resilient cashflows and encouraging progress on lettings.
It does not believe the property developer will breach its banking covenants, nor does it expect it to draw down significantly on the £2.7 billion of available facilities beyond the £300 million of committed development expenditure.
Shares of UK Coal moved off recent six-year lows with a rise of 6p to 59½p on learning that a clutch of directors have been taking advantage of the weak price to top up their holdings. Chairman David Jones bought 25,000 shares at 54¼p, and now holds 35,000, or less than 1% of the company. Chief executive Jon Lloyd bought a similar amount at 53p and now owns 25,000.
