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Sports Direct shock drags down FTSE amid US rates fears

Sports Direct tumbles on profit warning and FTSE falls into red as strong US jobs figures spark fears over further rate rises.

 
Sports Direct shock drags down FTSE amid US rates fears

Update: Shares in Sports Direct have tumbled after the discount retailer became the latest to report on a disappointing Christmas period.

Sports Direct (SPD) dropped 15.1% to 434.8p after warning the market full-year earnings were likely to miss targets by as much as £40 million following 'a deterioration of trading conditions on the high street and a continuation of the unseasonal weather over the key Christmas period'.

Sports Direct joins a roster of retailers in warning of a difficult Christmas. Next (NXT) and Marks and Spencer (MKS) have also reported disappointing festive sales this week.

The company has also faced a barrage of negative publicity after a Guardian investigation into its treatment of workers.

Sacha Sadan, director corporate governance at Legal & General Investment Management (LGIM), said: 'LGIM has had governance concerns for a long time and voted against the re-election of the chairman of the board in 2014 and 2015. We will continue to engage to improve the governance of Sports Direct.'

Tony Shiret, analyst at Haitong Research, added: 'We think the issue for investors is assessing whether Sports Direct is just seeing the same weather-related impacts as others or any additional impacts from the recent heavy negative publicity.'

'The warning adds to fears that consumers could morally shun the company over its 'gulag-esque' warehouse working conditions,' said Jasper Lawler, market analyst at CMC Markets UK.

The FTSE 100 gave up earlier gains to close the day 42 points, or 0.7%, lower at 5,912, as strong US jobs figures led to speculation the world's largest economy could follow December's interest rate rise with a second hike more quickly than expected.

The US created 292,000 jobs in December, well ahead of the 200,000 figure forecast. 'Indications that the US economy remains robust strengthens the case for further rate rises this year, though the Fed has been at pains to point out that the pace of monetary tightening will be gradual,' said Ben Brettell, senior economist at Hargreaves Lansdown.

'Some economists predict a second rise could be on the cards as early as March, though I believe June is more likely.' 

Tesco leads FTSE higher

(10:32) Tesco has led the FTSE 100 higher as China's scrapping of its controversial 'circuit breaker' trading suspensions helped instil some calm in volatile markets.

The FTSE 100 rose 38 points, or 0.6%, to 5,992, mirroring rises across eurozone markets, after China's stock market managed to post gains after concerted attempts by regulators and state-backed funds to support the market.

China yesterday scrapped its 'circuit breaker' rules, which trigger a 15-minute trading suspension when the market registers a 5% daily fall, and a complete halt to the day's trading when losses hit 7%.

The suspensions had been triggered twice this week as China's stock market was subjected to a sustained sell-off, and were viewed by many as adding to investor jitters. State-backed funds also appear to have been buying up shares to inject confidence into China's stock market, helping the main Shanghai Composite index close 2% higher.

'In reality Chinese authorities had little choice in the face of further volatility-induced shortened trading days, quite simply a 7% circuit breaker on a market that can swing as much as that in a single day was always doomed to fail,' said Michael Hewson, chief market analyst at CMC Markets UK.

'The bigger question now is whether Chinese authorities can restore some vestige of credibility over the coming days and weeks in the face of a currency that still remains broadly overvalued on a trade weighted basis, and is likely to continue to go lower, in the process placing further downside pressure on global inflation and commodity prices.'

Tesco (TSCO) was the biggest riser on the index, up 5.4% at 146.7p, as Barclays analyst James Anstead said now was the time to buy the embattled supermarket. Anstead upped his recommendation on the shares to 'overweight' from 'equal weight', although he lowered his target price to 190p from 225p.

'We think recent share price underperformance has left Tesco's valuation at attractive levels, although we remain conscious of the numerous headwinds facing the UK food retail market,' he said.  

Shares in Tesco have lost more than half their value over the last two years as the supermarket has battled the threat posed by discount retailers Aldi and Lidl and been hit with an accounting scandal that left a £263 million black hole in its balance sheet.

Anstead pointed to the heavy declines since its interim results in October, with the shares down 26% to yesterday, more than double the declines suffered by rivals Sainsbury's (SBRY) and Morrisons (MRW). 'While a degree of underperformance would not be surprising - after all [market researchers] Kantar Worldpanel market share data has not indicated great performance by Tesco - the degree of underperformance seems excessive to us and has left Tesco trading on some potentially attractive valuation multiples.'

He added that Tesco's trading update next Thursday 'may be less worrisome than the market's worst fears' and full-year results in April should give more clarity on cost-saving opportunities.

Oil stocks were in the red despite the price of Brent crude lifting off 11-year lows to trade 1.4% higher at $34.23 a barrel. Shell (RDSb) fell to the bottom of the index, down 2.4% at £14.27, and BP (BP) dropped 1.6% to 332.3p.

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Top 10 active investment trusts

by Jennifer Hill on Dec 02, 2016 at 07:14

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