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Banks and builders gave a big round of applause to the Bank of England monetary policy committee's latest half-point cut in interest rates to a record low of 1%.
The rest of the City appeared unconvinced by the move, not to say downright sceptical.
As one leading broker commented: “This is no longer an issue about the cost of money, it is now about the availability of money.”
There is precious little evidence to suggest this latest cut will do anything to ease the plight of folk looking to borrow money. Meanwhile, lenders are continuing to be penalised, which makes investing look even less attractive while, at the same time, choking off fresh money supply to the banks.
As a result, the rest of the stock market slammed into reverse, having previously clawed back initial losses. The FTSE 100 index was left nursing a loss of 39.6 points at 4188.9 in another day of wafer-thin trading conditions.
The banks rallied from opening falls, hoping the latest cut in interest rates will boost their margins. But Credit Suisse has reduced its price targets for the High Street lenders, pointing to the considerable uncertainty surrounding Government plans to sort out their balance sheets with the introduction of a toxic bank. The broker remains fundamentally cautious, and warns it does not see returns above the cost of equity for many years to come.
It has cut Lloyds Banking Group, up 3.3p at 98.5p, from 125p to 90p with a neutral rating. Royal Bank of Scotland, 1.2p dearer at 22p, is also rated at neutral with its price reduced from 65p to 40p.
The banks' reporting season gets under way on Monday with full-year numbers from Barclays, up 0.1p at 97p. JPMorgan has reduced its target from 150p to 114p ahead of the figures, repeating its underweight rating. It warns that the low interest-rate environment and the limited scope for raising the value of assets, because of Government pressure, will lead to substantially reduced forecasts. Credit Suisse has cut Barclays from 200p to 135p with a neutral rating.
The housebuilders also recovered from early lethargy, cheered by the move towards cheaper money and news from the Halifax that house prices rose 1.9% last month. Their performance was all the more remarkable after taking into account a grim trading update from Bellway, up 19p at 631½p, as the bears moved to square-up their positions.
The group reported a 38% dive in sales, and warned that margins may drop as much as 50% as it acts to reduce debts by up to £120 million by July. Shore Capital said Bellway is still struggling with challenging trading conditions, but the balance sheet does not require urgent funding. Even so, it has repeated its sell rating. Arbuthnot continues to rate the shares a buy with a 686p target.
Rival Persimmon firmed 2½p to 321p after briefly touching 310¾p. Rival Berkeley Group added 23p at 823p while Taylor Wimpey advanced 1¼p to 17p.
The lack of guidance on prospects left Unilever nursing a loss of 99p to 1384p, making it the day's worst blue-chip performer.
News of a 25% rise in fourth-quarter profits at BG Group was well-received, and the shares rose 67p to 1018p.
Tullow Oil dipped 4p to 686p despite its latest drilling report confirming the success of its Kingfisher appraisal well in Uganda. Some estimates claim the well has oil reserves of up to 200 million barrels.
Heritage Oil, which operates the Kingfisher well, put on ¾p at 211¾p. Citigroup has raised its target for Tullow from 730p to 795p and continues to rate the shares a hold.
Malaysian shareholder Hong Leong has raised its stake in Rank Group, unmoved on 60p, by 1% to 26%. It has increased its holding from 4% during the past year, fuelling speculation it may eventually launch a full bid. Another Malaysian company, Genting, owns 11% of Rank.
