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FTSE slides as fiscal cliff fears grip US

FTSE slides as fiscal cliff fears grip US

17.10: The FTSE 100 fell further in afternoon trading to close more than 1% or 64 points down at 5,772 in response to the continued bearish mood on Wall Street.

US investors were initially in bullish mood as computer networking giant Cisco Systems impressed with better-than-expected first-quarter results, sending its shares up nearly 7%.

However, the cheer soon dissipated as investors resumed their worrying about the ‘fiscal cliff’. The Dow Jones industrial soon turned south and currently trades 57 points or 0.5% down at 12,699. The S&P 500 was four points or 0.3% lower at 1,370.

Also weighing on sentiment was a 0.3% fall in US retail sales fell in October reflecting the impact of hurricane Sandy, which caused up to $50 billion of damage on the east coast.

According to Reuters, analysts estimate the storm could reduce US fourth-quarter GDP by as much as half a percentage point, although they say the economy should make up for that early next year.  

Sainsbury slips as European protests darken mood

Sainsbury succumbed to some profit taking on a falling FTSE 100 on Wednesday morning, as the City hailed another set of strong financial results from the supermarket chain.

Continuing concerns over the potential fiscal cliff in the US, as well as a deadlock over aid to Greece kept investors away from riskier assets, on a day marked by coordinated general strikes in Spain, Portugal, Greece and Italy.

The FTSE 100 fell 35 points or 0.6% to 5,750, with similar losses across other European markets, following another decline on Wall Street.

Asian shares had been mixed as China’s once-in-a-decade congress drew to a close, with president Hu Jintao announcing that decisions had been made that 'replaced older leaders with younger ones', to be revealed tomorrow.

The pound slipped to $1.5857 against the dollar after Bank of England governor Mervyn King left the door open for further quantitative easing, or money printing, as he presented the Bank's quarterly Inflation Report.

Sainsbury strength

Shares in Sainsbury (SBRY.L) dropped 2% to 340p after the supermarket group reported a 5.4% rise in first-half profits, after its 31st consecutive quarter of like-for-like sales growth.

Sainsbury proposed an interim dividend of 4.8p, a 6.7% increase in a set of results that again showed the company gaining ground on bigger rival Tesco. Fund managers such as Job Curtis have been recycling some of their holdings in poor performing Tesco (TSCO.L) shares into Sainsbury.

Analysts welcomed the numbers, but with slight caution. ‘We must reiterate our concern that if market leader Tesco does begin to regain share from its margin investment programme, then Sainsbury remains the most vulnerable given the scale of trading overlap between the two groups,’ said Darren Shirley of Shore Capital, reiterating his ‘hold’ recommendation on a 'very solid' set of results.

Kate Calvert of Seymour Pierce said: ‘We expect profit taking but maintain our hold recommendation as the shares do have an attractive 4.8% yield and it is our preferred food retailer.’

Ex-divi losers

Shares that were trading without their dividend attraction slumped lower on the FTSE 100, with Shell (RDSb.L) down 1.8% to £21.85, Marks & Spencer (MKS.L) 1.5% lower to 379p and GlaxoSmithKline (GSK.L) off by 1.6% to £13.34.

Bank downgrade

Banks Barclays (BARC.L) and Royal Bank of Scotland (RBS.L) were also lower, to 235p and 275p respectively, after Liberum downgraded the two to ‘hold’. ‘With the Euro area growth outlook deteriorating, OMTs potentially significantly delayed and the BoE’s QE programme at least temporarily on Hold, further near term upside for BARC and RBS looks limited,’ warned analyst Cormac Leech.

The brokerage reiterated its ‘buy’ recommendation on Lloyds (LLOY.L) however, helping cap losses on the shares which were off slightly to 46p.

Meanwhile, lower down the FTSE chain, Darty (DTY.L) dived 6% or 2.75p to 43p as the electricals retailer formerly known as Kesa reported a drop in half-year revenues and said trading continued to be challenging.

FTSE winners

At the other end of the spectrum, Scottish & Southern Energy (SSE.L) reported a 38% rise in first-half profits, which had consumer groups raging and investors buying. Shares added 0.4% to 1,389p.

Shares in Amec (AMEC.L), the engineering consultancy, rose by 2% to 1,055p, making them the biggest riser on the blue chip index, after reporting in-line results.

Fund manager favourite Weir Group (WEIR.L), the biggest holding in Nigel Thomas’s top performing AXA Framlington UK Select Opportunities fund, was among the top risers on the FTSE after an upgrade from Nomura. ‘We upgrade to a Neutral rating as pricing headwinds are less imminent than we had earlier anticipated and as near-term EPS downgrade risk is now more limited,’ commented analyst Juho Lahdenpera in a note that helped the shares to a 2.1% rise to 1,775p.

Britvic (BVIC.L) and AG Barr (BAG.L) rose 2.5% and 2.9% as they finally agreed terms on their £1.4 billion merger that will create one of the largest soft drinks companies in Europe.

Prudential (PRU.L) added 5.5 points or 0.6% to 871p on third quarter results that showed the £22 billion insurer continuing to benefit from its strong position in Asia and from record inflows into its investment business M&G.

Centamin (CEY.L) was 1.35p firmer at 72.25p after posting a 22% rise in quarterly earnings and reiterating its confidence that it would win an appeal against a court ruling challenging its ownership of the Sukari gold mine in Egypt.

Carphone Warehouse (CPW.L) drove 9.75p or 5.5% higher to 185.25p on the back of better-than-expected half-year results from the mobile phone retailer.

Looking ahead

Among potentially market-moving economic data releases today, investors await industrial production numbers in the eurozone and then the minutes of the Fed’s FOMC committee’s latest meeting, which are due to be published this afternoon. In the UK, labour market data is due.

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Nigel Thomas
Nigel Thomas
136/155 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 11.69%
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