Afternoon:
9°c
Market report - afternoon update
Housebuilders were the outright winners of today's move by the Bank of England monetary policy committee to slash interest rates by a full percentage point to just 2%.
The prospect of cheaper money, along with a move by the banks to pass on interest rate cuts in full to mortgage holders and the Government's pledge to aid those who fall behind with their repayments, paints a much brighter future for the housing market.
House prices have plunged 16% during the past year, along with the fortunes of some of our biggest builders. They have seen their share prices plunge after being forced to write off the values of their land banks and portfolios of unsold homes.
Share prices have slumped under the weight of soaring debt, which has forced some of them to attempt to renegotiate the terms of their loans with the banks. But at last they have something positive to talk about, and that was quickly recognised by bargain-hunters in the stock market.
Leading them higher was Barratt Developments, up 4½p at 58p, followed by Persimmon, 7½p to 191¼p, Bovis Homes, 20¼p to 345¼p and Bellway, 28½p to 527p, on the back of its latest trading update. Even Taylor Wimpey rallied 0.12p to 9.99p. It continues to struggle under debts of £1.8 billion, and has been in talks with its bankers for the past few months. Taylor Wimpey started the year at 229p, but is now valued at just £104 million.
Property companies are also looking to benefit from the lurch toward cheaper money. Commercial property was one of the earliest casualties of the banking crisis with property values and share prices coming under intense pressure. Those hoping that the market may have reached the bottom include Land Securities, up 6½p at 907½p, and British Land, 4p better at 526p.
The interest rate cut was not as much as some had been looking for, but livened up an otherwise dull day. Even so, share prices traded below their best levels of the day following confirmation of the move by the MPC.
Ahead of the news, the FTSE 100 index was 37 points higher. It later settled 2.94 lower at 4167.02, with fewer than two billion shares traded. Shares opened lower on Wall Street this afternoon, the Dow shedding 51.5 to 8540.1 on news of the biggest drop in factory orders for eight years.
DigitalLook.com, the information website for private investors, says 18% of the FTSE 100 companies now have forecast yields in excess of 4%, covered twice or more by forecast earnings. The high yields of the UK's largest companies look even more attractive now the Bank of England has slashed rates and driven down interest rates for savings accounts.
The forecast yield for the FTSE 100 is now 5.5% compared with the long-term average of 4.6%, which covers 1959 to 2002.
Goldman Sachs took a swipe at the miners, saying the outlook for 2009 appears increasingly difficult. It has downgraded its coverage from attractive to neutral. The broker reckons BHP Billiton, down 19p at 1056p, is likely to navigate current market turmoil fairly unscathed, supported by its relatively strong balance sheet, which should allow it to continue to develop new projects in line with its customers' demands. It says much of this is already priced into the shares, so it is rating them at neutral.
There were also setbacks for Anglo American, up 7p at 1324p, Lonmin, 2p firmer at 665½p, and Antofagasta, 13¼p lower at 392½p. The Chilean copper producer may take legal action against its Mauro tailings dam operation, which is key to expansion at Antofagasta's biggest mine, Los Pelambres. Canaccord Adams has a hold rating and 350p target on the shares.
Reed Elsevier dropped 22½p to 520p after Royal Bank of Scotland cut its rating from buy to hold and slashed its target from 685p to 540p. It says the publisher has outperformed the market by 30% since September 2007 and is now approaching a record relative high.
