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Friday 19 December update
Citigroup today forecast a further drop of 15% in house prices next year, which will be bad news for homeowners and builders.
Higher unemployment, shortage of mortgage availability and weaker consumer confidence will all contribute to making 2009 another difficult year, says Citi. Lower interest rates will only help marginally, the US broking giant insists.
So, with house prices continuing to drop and the builders deep in conversation with their bankers about breached covenants, the focus of attention will remain on cashflow. As a result, they will have to balance between chasing volumes by lowering prices further and holding out for the best margins possible.
Citi says the best bet is to stick to the safest stocks in this environment, with Berkeley, down 24p at 886p, and Bellway, off 12½p at 591½p, offering the strongest balance sheets. It adds that the best value can be had in Persimmon, off 17¾p at 236p, while Redrow, down 15p at 174p, is moved back to a hold.
It has also repeated its hold rating on Bovis, down 13¼p at 405½p, while it says Barratt, 3p cheaper at 69p, looks more stable and could provide some scope for improvement if market conditions improve. Citi says Taylor Wimpey, 1¼p firmer at 12¾p, still relies too much on the debt refinancing to make a conviction call on the stock.
Meanwhile, UBS has raised Persimmon from neutral to buy and cut Redrow from neutral to sell.
Shares generally beat a broad retreat as investors continued to ponder prospects for the New Year. A sell-off on Wall Street overnight accompanied by a cut in Japanese interest rates and a further drop in the price of oil gave them plenty to think about. The expiry of the December futures and options passed off without too much trouble, but the FTSE 100 index was left nursing a loss of 85.5 points to 4245.1.
Shares of Europe's biggest bank, HSBC, were sold off overnight in Hong Kong. The selling continued in London today, with the price losing 20p to a record low of 605¼p amid mounting speculation that the bank will raise £9 billion by way of a rights issue, or cut the dividend to conserve cash.
Rating agency Standard & Poor's says HSBC has weathered the current market turbulence relatively well, and has reaffirmed its rating. But it has revised its outlook from stable to negative on the risk level among banks generally.
Mining shares came under the hammer with Antofagasta dropping 35p to 386¼p, Rio Tinto 115p to 1414p and Vedanta Resources 74½p to 590½p.
DigitalLook.com reckons next Monday's reshuffle of the Footsie 100 constituents will have seen the percentage of mining companies represented drop from 16% to just 8% in the past six months. The percentage of the index made up of commodity-related companies will have dropped from 37% to 31% over the same period.
UBS has cut Xstrata, down 70½p at 657½p, from buy to neutral and slashed its target from 1900p to 800p. It has concerns that the Anglo-Swiss company may breach its banking covenants on $10 billion (£6.8 billion) of loans.
The broker has cut Anglo American, 147p off at 1445p, from neutral to sell and lowered its target price from 2200p to 1800p, following a reduction to its coal price and volumes forecast.
Oil shares retreated following the latest drop in the crude price overnight in the US. The price of Brent rallied half a cent to $43.56 this afternoon but that was cold comfort to the big oil producers. Cairn Energy fell 55p to 1845p, BG Group 39p to 918½p and Tullow Oil 17p to 609p.
Antisoma responded to news of US Food and Drug Administration approval for its oral chemotherapy treatment Fludarabine with a rise of 2¾p to 25¼p.
KBC Peel Hunt says it is “fantastic” news for the group. The drug was added to Antisoma's pipeline through the acquisition of Xanthus earlier this year. Antisoma will now start talks with potential partners.
