Afternoon:
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Market report - afternoon update
City big-hitter UBS forecasts a major recovery in share prices in 2009 despite warnings that the recession will be long and deep, and run into 2010.
It bravely predicts a 2009 year-end of 5800 for the Footsie 100 index, which has lost almost 40% of its value since hitting a peak of 6730 in October last year - just days before the first of the credit-crunch sell-offs.
UBS expects GDP to contract by 1.8% next year as the banking crisis enters the stage at which lenders restrict credit to the real economy, adding: "The recession we forecast is similar to the early 1990s experience in terms of the magnitude and duration. The UK will underperform the euro area in terms of economic activity. The UK equity market, however, is set to outperform the euro area in spite of our more bearish macro outlook for the UK."
The broker believes decoupling of the macro story from the equity-market performance is mainly achievable because the UK is further into the slowdown than Europe. It also envisages an aggressive policy response in the UK.
But rival Morgan Stanley isn't taking any chances. With a bull case of 6500 points and a bear one of just 2500 for the Footsie in a year's time, analysts say the range of possible outcomes for the markets remains incredibly wide. While equities currently look cheap on traditional valuations, Morgan won't rule out further major sell-offs as investors continue to shun the markets.
Leading shares had better start performing if they want to make up the lost ground any time soon. They were a touch softer for choice today, with all bets on hold as investors waited to see if the Bank of England will signal another full-percentage-point cut in interest rates tomorrow.
The market had to contend with a long list of blue-chips going ex-dividend. They included Severn Trent, 35p lighter at 1100p, Vedanta Resources, 5½p higher at 537p, Land Securities, 7½p lower at 887½p, London Stock Exchange, 41½p off at 542p, National Grid, 11½p down at 601p, 3i, 21p cheaper at 375p, and Associated British Foods, 22p lighter at 637½p.
Collectively, they would have accounted for a fall of almost 2.5 points in the FTSE 100. As it was, the index was able to restrict the deficit to 38.09 at 4084.77 despite the purchasing managers' index for the services sector coming in below expectations. In New York, the Dow sank 110.71 points to 8308.38.
Rail and bus operator Stagecoach went into reverse following results, dropping 31.2p to 140.3p, after warning the rail boom is over. Job cuts in the City are expected to bring hundreds of redundancies among the capital's commuter train companies.
Shares of the other bus and train operators were marked sharply lower after Stagecoach's bearish comments. Go-Ahead, which covers Southern and South Eastern services, plunged 175p to 997p, National Express fell 65¼p to 481¾p, and FirstGroup 30½p to 399½p.But Shore Capital continues to rate Stagecoach a buy and reckons the company's rating prices in the rail operations at virtually zero. A rating of 10 times earnings for a bus business with a robust balance sheet appears good value for money.
Housebuilder Barratt Developments, 2¼p firmer at 52¾p, perked up after announcing progress on the sale of assets from its Wilson Bowden portfolio. Barratt today said it has raised £109 million since mid-November, which it will use to lower borrowings. Its shares started the year at 508½p.
Other builders were in negative territory despite hopes of a boost from the MPC tomorrow. Redrow dipped 1¾p to 177p, Persimmon was 18½p lower at 184p and Berkeley dived 35p to 804p ahead of results on Friday.
Shares in industrial coatings supplier Cookson fell 10½p to 93½p. Word is a line of stock may be overhanging the market amid fears Cookson will struggle throughout a recession.
