Another difficult week for equities as downbeat forecasts pour in

13th June – Good two way action in the recovery stocks

After the carnage of the last two weeks, value investors have been seen picking up some more of the beaten down stocks today after yesterday's big reversals in banks and housebuilders.  US stocks closed on a weak note after an earlier big rally so there is a possibility of another fall in markets, but we have an intriguing picture at the moment.

HBOS, which has a £4bn rights issue at 275p closing in July, saw a big rally yesterday and is up another 7% so far today as shorts have been closing positions, but companies that may possibly need to tap shareholders in future, such as Alliance & Leicester and Persimmon are also up.  Before racing into these however, traders should be aware that a similar pattern occurred at RBS just before the rights issue closed, and the shares fell back again shortly afterwards.

Elsewhere, BG Group is up after it revealed another new oil discovery in the Santos Basin, offshore Brazil. The exploration well, known as Guara, discovered oil within the BM-S-9 concession area, the second discovery within the BM-S-9 concession area where BG holds a 30% interest along with operator Petrobras (45%).  The shares have been quiet recently but this might be the kickstart they need to resume the longstanding bull trend.

16^th June - Busy open today as Footsie edges up

Once again there was plenty of weekend news for traders to chew on across various market sectors, and after a strong rally in the Far East the FTSE 100 index has seen some buying today.  There is still plenty of uncertainty around in terms of economic forecasts, and by mid-morning the index was up just 13 points.

The big story concerns Barclays, which confirmed it was considering a placing and a pre-emptive offer to existing shareholders.  The press has suggested it was in talks with sovereign wealth funds about raising £4bn, but with the bank adding that profit before tax in May was well ahead of the monthly run rate for 2007, the shares are up a hefty 9% so far.  It could be that we have now seen the worst of the banking sector falls, and we will be looking for a clear higher low to confirm the trend change,

Another sector that reversed sharply at the end of last week was housebuilding and there was a story over the weekend that that bankers at UBS had drawn up possible plans for a wide-ranging placing by major shareholders in leading companies in the sector including Taylor Wimpey and Barratt Developments.  The debt situation in these builders is still of concern, so at this stage we would be wary of chasing these rallies until the financing becomes clearer.

One are that needs watching closely is oil, with reports that OPEC may be considering a supply increase in the face of demands from developed economies to curb high crude prices.  This is another situation that is set to develop in coming weeks, but long side traders in oil and sector stocks should at the least tighten stops and potentially look for shorting opportunities if crude begins to pull back.

17^th June - Potential spike high in oil markets sees more market volatility

There was some dramatic action in the crude oil markets yesterday as prices popped up to a new high close to $140 only to fall back and end slightly lower on the day.  Whether or not this is a short term high for oil remains to be seen, but the volatility looks set to continue to affect equity markets.  So far this morning we have seen a 50 point rise on the FTSE 100 index as the three day recovery continues after last week's selloff.   The rises have been rather more spread within various sectors rather than purely driven by recovery stocks as has been seen in recent sessions, and there is still an element of uncertainty as to where we go next.

This morning's inflation data has shown UK CPI at an annualised rate of 3.3%, again slightly above forecasts, so this will require a letter from the Chancellor to the Bank of England indicating why the figure is above the bank's target.  It will also put pressure on the BoE's Monetary Policy Committee to consider interest rate rises despite the fragility of the economy.

On a quieter day for reports, Whitbread provided an element of reassurance as it reported a strong start to the current year with growth in all of its businesses.  Total sales in the 13 weeks to 29^th May were up by 14.6% and like-for-like sales grew by 7.1%.  Sales growth was impressive at Premier Inns, at the pub restaurant arm and at Costa Coffee, and the shares were up 4% mid-morning.  They still remain within a trading range so again we would prefer not to chase this until we see what effect the consumer downturn has on future sales growth.

18^th June - Footsie goes into reverse after spate of downbeat reports

UK shares fell away today as a raft of overnight press reports indicated the degree of pessimism towards the outlook for the economy and the credit crunch.  Once again it was the housebuilders that led the way down following the decision yesterday by credit rating agency Fitch to downgrade Taylor Wimpey's debt to junk status, which reiterated concerns about the health of some of the weaker builders.  Despite some recent reassuring comments from brokers, TW shares are down almost 10% and Persimmon, Barratt and Redrow are also very weak.  In the commercial property sector there were falls for British Land and Land Securities as Credit Suisse lowered its rating on the latter to ‘neutral' from ‘outperform' and lowered its target to 1,529p from 1,934p.  We remain very cautious for both sectors until we see clear signs of a change in trend, which has not happened yet.

Turning to results, the news from Sainsbury was not too bad, with Q1 sales up by 8.1% or by 4.5% excluding fuel, slightly below forecasts.  Like-for-like sales for the period rose by 7.3% and by 3.4% without fuel, but like many others the group said that the environment would remain challenging.  It added that it operates from a strong financial position and its expectations for the full year remained unchanged, but the shares are so far caught up in the market's falls to show a loss of 2.5% mid-morning.  Our stance here is neutral to bearish in the short term, as is the case for many consumer-related stocks.

In the same sector, Woolworths CE Trevor Bish Jones is standing down after six years.  Once again it issued another cautious trading statement with group sales from the combined Retail and Entertainment Wholesale and Publishing businesses down 1.9% for the 19 weeks to 14^th June.  It doesn't look good here either, and this is certainly too high risk to be considered a buy at this stage with the shares down another 7% today.

19^th June - Footsie struggles for direction as more financial reports some through

Although the FTSE 100 index opened higher today, there has been some fair two-way action and by mid-morning the index was virtually unchanged and still looking shaky after yesterday's big drop.  Once again, much of the focus has been on the bank sector after the statement from HBOS, which said that trading continued to be in line with expectations.  The group added however that it expected H1 writedowns to reach £1bn and the UK economy to slow with house prices deteriorating further, with writedowns in its Treasury Trading Book since its interim statement in April, having increased by £58m to £1,028m. 

This is the gloomiest assessment of the house market so far, and it suggests more bad debt problems for the sector, which has seen falls in Barclays, Royal Bank of Scotland, Alliance & Leicester and Lloyds TSB.  We remain extremely cautious as we have been for last couple of months, and this applies to housebuilders and retailers aswell.

There was some better news from what has traditionally been viewed as a defensive stock, Cadbury's.  It gave a fairly solid update with the expectation of revenue growth in H1 of this year to be above the top end of its 4%-6% goal range.  It also saw Q2 growth to be modestly higher than the 7% like-for-like growth reported in Q1 with good progress having been made on margins despite further increases in marketing.  The shares opened higher but edged back to stand unchanged mid-morning, and our view is that the rating looks about fair for these at present.