UK Equity Markets Retreat

Posted on | August 26, 2009 |

The pressure of recent gains – which had taken UK and US markets to their best levels of the year – coupled with some poor earnings figures, proved too much today as UK equity markets retreated.

The FTSE 100 struggled for momentum all day after the energy sector was hit by poor profit announcements. Antofagasta was down 42p (or 5.32%) by 3pm (London time) as it reported a 70% drop in first-half profits, while Tullow Oil dropped 54p (or 4.93%) after publishing an 80% drop in profits on the back of lower oil prices. The entire sector was hit, with Fresnillo, Xstrata and Rio Tinto completing the bottom five places on the market’s leader board.

Wider economic news was also mixed. Electronics giant, Fujitsu, announced plans to cut up to 1200 jobs due to the economic downturn – around one tenth of its UK workforce. The decision means the company follows in the tracks of IBM and Capgemini; both businesses have also cut jobs on the basis that IT spending has been cut back during the tricky economic climate.

Trading on Wall Street started negatively, with industrials once again under pressure. Caterpillar was the largest faller in early trading, shedding just over 1% by 3.30pm in London.

Yet again though, just as equities started to look vulnerable, a better-than-expected piece of economic data provided a tonic for stock markets on both sides of the Atlantic.

In the US, new home sales for July – which had been expected to come in at around 365,000 – surprised analysts by increasing 9.6% to 433,000. The news immediately took the Dow Jones into the green and pared losses on European markets.

Durable goods orders also increased, but – excluding transportation goods – this was less than analyst forecasts has suggested. Aside from the 18.4% increase in transportation goods, which was fuelled by a doubling in aircraft bookings during July, orders rose 0.8%. Nevertheless, this is now the third consecutive increase, the best string of improvements seen in four years.

The biggest beneficiary on the Dow was, unsurprisingly, Home Depot, the home improvement retailer, which added 62 cents (2.27%) to its share price. Other consumer-led shares did well in the first hour of trading, with McDonalds adding 0.69% and Wal-Mart gaining 0.66%.

By contrast, General Electric shed almost 1% despite being chosen to build a 2000 megawatt power plant in Kuwait. The company came in with the lowest bid for the job – $2.65 billion.

Crude oil was down around $1.20 to $70.85 a barrel as the market corrected itself after recent gains on uncertainty over US petroleum stockpiles.

By Anthony Grech, Research Analyst, IG Index.

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