The FTSE slipped into negative territory this morning, as investors trimmed their exposure to banks ahead of this afternoon’s quarterly results from Citigroup.
The blue-chip index was also weighed down by banking sector downgrades and disappointing beer volumes from the SABMiller.
We must also consider the fact that we’re slowly moving into a tightening phase, where deficit-burdened governments will be removing some of the stimulus that has helped their economies recover. For example, China yesterday lifted its reserve requirements by half a percentage point in order to prevent domestic asset bubbles from forming, while UK Chancellor Darling is expected to announce plans slash public spending this week.
This tightening phase is clearly creating some anxiety, as the premature removal of stimulus could potentially erase most if not all of the economic progress we have witnessed so far.
By 10:35am (London time) the FTSE 100 had retreated 46.22 points (-0.84%) to 5448.17, while the broader FTSE 250 sank 86.07 points (-0.90%) to 9486.
Barclays was the worst performing stock in the banking sector, down 2.7% to 309.3p after Credit Suisse cut the its target price from 400p to 350p per share, saying that Barclays may need to raise £17 billion to meet new capital requirements over the next three years. ‘Our numbers suggest a potential sizeable capital deficit,’ Jonathan Pierce of Credit Suisse wrote in a report released today.
HSBC was the victim of a downgrade as well. The bank’s shares sagged 2.24% to 683.3p after Exane BNP Paribas lowered its rating on the stock from ‘neutral’ to ‘underperform’.
Meanwhile, sector peers RBS, Standard Chartered and Lloyds Banking Group fell between 0.6% and 2.6%.
Also weighing on market sentiment were SABMiller’s disappointing underlying worldwide beer volumes, which were unchanged over the third quarter (when stripping out acquisitions and disposals). This missed Bloomberg’s median analyst estimate for a 1% rise. SABMiller’s shares dropped the most.
International Power continued to decline as well today, after stating that it has not reached an agreement with France’s GDF Suez yesterday. Shares of the British electricity provider fell 2% to 304.8p.
Bucking the trend was Cadbury, which surged 3.7% to 837.5p after its broad agreed to a revised £11.9 billion takeover offer from Kraft. Cadbury’s shareholders will receive 840p, including 500p in cash and the balance in shares. Cadbury’s shareholders will also be entitled to a special dividend of 10p a share.
Utilities companies were also en vogue today following a sector upgrade from Deutsche Bank. The broker upped its rating on utilities from ‘underweight’ to ‘neutral’. Shares of United Utilities climbed 0.84% to 495p and Severn Trent added 2.5% to 1116p.
Mobile telecommunications heavyweight Vodafone provided some support to the FTSE as well this morning, rising 1% to 136.95p following an upgrade from BoA Merrill Lynch.
Meanwhile, luxury clothing retailer Burberry saw its share price rally 4.34% to 625.5p after saying it expects 2009 full-year earnings to be at the top end of the market’s expectations. It also unveiled a 15% rise in third-quarter sales of £380 million, beating Bloomberg’s median expectations by nearly 12%.
The Carphone Warehouse Group was also in favour, up 1% to 199p after announcing that it sees its full-year earnings at the upper end of consensus expectations. The company said its earnings per share in the 12 months through March will be close to the 15p guidance provided in November.
Looking ahead, the March Dow and S&P 500 futures traded marginally lower, suggesting that the market currently expects Wall Street to open in negative territory this afternoon.
Citigroup and IBM are set to announce results by around midday today while Bank of America and Morgan Stanley will publish their quarterly results tomorrow. American Express, Goldman Sachs and Google’s results are scheduled for release on Thursday followed by General Electric on Friday.
