Market update - 1 July

The FTSE 100 was low early today, down 141.5 points at 5484.8 at 11.56am. A lack of corporate newsflow, fresh evidence of a housing market slowdown and a weaker-than-expected reading on the UK PMI, which sunk to its lowest level since December 2001, combined to wipe out Monday’s gains. A lacklustre overnight performance on Wall Street, where the Dow Jones Industrial Average finished virtually flat, and a raft of rumours pegging write-downs/profit warnings at UBS and Deutsche Bank also dampened sentiment in London.

Moving up

On the FTSE 100, only two stocks registered gains this morning - BT rose by 1.85p to 201.75p and Reckitt Benckiser climbed by 18p to 2563p

On the FTSE 250, Barratt Developments bucked the market trend and rose by almost 0.75p to 58.75p on the back of reports that it was negotiating a refinancing deal with its lenders.

Positive broker comment aided Autonomy, the Cambridge-based software group which gained 11.5p to 918p. Morgan Stanley initiated coverage on the stock with an “overweight” rating and an 1100p target price, while Merrill Lynch, pleased by recent contract wins, reiterated its “buy” rating.

“Autonomy is starting to deliver on its promises. Following the $70mn banking deal announcement in January and a smaller multi-million dollar deal in April, we saw in the past few days further contracts for $65mn (investment bank) and over $20mn (pharmaceutical company). This confirms management’s claims that the market opportunity in the litigation/compliance area is very large,” said Merrill, adding:

“We continue to like Autonomy as one of the few structural growth stories in European Tech. The Zantaz acquisition has clearly changed the profile of the company and the large multi-year contracts combined with the healthy OEM revenue stream are offering a significantly less risky revenue profile than only a few years back.”

Moving down

The Nationwide Building society said this morning that UK house prices fell by 0.9 per cent last month after a 2.5 per cent in May, which was the sharpest fall since the series began in the early 1990’s. The news sullied sentiment around HBOS, the country’s biggest mortgage lender which fell well below its 275p per share rights issue offer price, down 2.9 per cent or 8p at 268p.

The wider banking sector was also depressed – Alliance & Leicester lost 16.5p to 278.5p, Barclays was down 15p at 276.5p, Lloyds TSB lost 13.5p to 297.25p and the Royal Bank of Scotland was down 12p at 203p.

The retail sector was also weak as fears of a sharper-than-expected economic slowdown intensified and Carphone Warehouse lost 14.1p to 183.8p. Kingfisher was down 6.2p at 106.1p and Next was down 50.5p at 919p.

Minus Barratt, the housing sector was predictably weak as Cazenove weighed-in on the state of the market.

“Last week, Tony Pidgley, the managing director of Berkeley Group, in his fifth decade in the housing industry has never known it so bad. The next few months are about survival, striking the balance between right sizing on the one hand and maintaining sufficient scale to take advantage of a recovering market (when it comes) on the other. Cut too much muscle and the upturn will be an opportunity missed, do not cut enough and keeping the muscle and the opportunity will not even be seen,” said Cazenove.

Redrow was the worst off in the sector and lost 6.49 per cent or 9.25p to 133.25p. Bellway lost 25p to 427.5p, Bovis Homes was down 18p at 322p and Taylor Wimpey was weaker by 3p at 59p.

And finally, Wolseley, the construction materials manufacturer, was hit by another bearish broker report and lost 7.84 per cent or 29.5p to 347p Goldman Sachs said it expects the company’s 11-month trading statement on July 16 “to highlight tangible deterioration in both the group’s UK and French operations” and reiterated its “conviction sell” rating.

Goldman added: “We expect all Wolseley’s end markets to deteriorate into FY2009, with greater pressure than we had previously thought in France and indicators for non-residential construction in the US increasingly negative.”