FTSE 100 week: Market back below 5,000

 

After three months of barnstorming gains and a month above the 5,000 mark, the Footsie sank back below the psychological level as October arrived. We round up the stock market week

Traders on the floor of the New York stock exchange on Wall Street

Trading down: It was a hectic end to the week on the markets both sides of the pond

As that wise old adage goes: what goes up, must also come down.

After three months of barnstorming gains – during which the FTSE 100 registered a record-breaking 22% rise – the index of leading shares sank back below the 5,000 mark to end the week, as investors cashed in some of the profits.

A finishing position of 4,988.7 on Friday meant the blue-chip index lost a total of 93.5 points over the week, dragged down by some worse-than-expected unemployment data in the US on Friday.

Chartist view: - Market may fall further after key support is breached

The US Labor Department said employers cut 263,000 jobs last month – a good deal more than the 180,000 leading economists had predicted.

It made for a 9.8% level of unemployment in the US – its highest since June 1983 – and had traders jittery over the strength of the global economic recovery as the typically dnagerous month of October arrived.

So traders trousered some of their recent gains just in case.

Dan Cook, senior market analyst at IG Markets said: 'Expectations are being tempered a bit right now.

'We're probably still on track for recovery, but it's going to take time to unfold.'

Across the pond, the damaging unemployment figures sent shell-shocked investors on a selling spree, leaving the Dow Jones down below the 9,500 mark - a 200+ point drop in a whirlwind end to the week.

But no sooner had the doom and gloom merchants began spluttering words of warning, than they were quickly hushed by analysts suggesting a fall was always on the cards for markets clearly ripe for retrenchment, given the recent rally's unusually rapid pace.

Stock market historian David Schwartz said: 'We are already in a six-month bull market and if we look back at the last 100 hundred years, bull markets tend to run for at least a year.'

He insisted the FTSE 100 can still finish the year at around the 5,300 mark, despite having 'come too far too soon'. His prognosis looks all the more credible given the fresh spout of merger and acquisition activity during the last few weeks.

On the Footsie, insurance giant Legal & General was in fine form. Intense takeover talk had shares trading in large quantities – 98 million changed hands on Thursday alone – but, as yet, potential suitors remain unnamed.

Punters still reckon a £7bn-plus offer will be tabled soon and shares rose 10.2p to 85.2p in response, making it one of the strongest FTSE 100 risers.

Other insurers also joined L&G at the top of the leaders board, with Aviva, up 42.2p to 452.6p, and Standard Life, 11.2p better at 215p, profiting from the increased popularity of the sector among traders.

Ever since Clive Cowdery and his takeover vehicle Resolution (unchanged at 94.25p) sank its teeth into Friends Provident early in the summer, Aviva and L&G have been touted as next on the list: the investment tycoon has already said he wants to add two more insurance firms to his growing portfolio.

Unilever also enjoyed a week hopping up the risers board, and profited off the back of a £1.5m acquisition of Sara Lee's personal care brands in the US. It means Sanex, Radox and Brylcream will now accompany Unilever's Dove soap brand on UK shelves.

Unilever's new chief executive Paul Polman said: 'The Sara Lee brands enjoy strong consumer recognition, offer significant growth potential and are an excellent fit with Unilever's existing business.'

Shares in the Anglo-Dutch consumer goods group cheered 38p to finish at 1,773p on Friday – and have risen 328p over the last quarter alone.

But the gains for investors were few and far between, with shares in almost a three out of four FTSE 100 firms losing value over the last seven days.

Hardest hit were miners.

Lonmin, the world's third largest primary platinum producer, rose 26p on Wednesday with investors trading on revived hot gossip that 24.9% shareholder Xstrata will return with a new cash offer later this month.

But the rise proved no more than a momentary blip and a dark light was cast over Lonmin shares as it shed 160p (9.6%) to 1,505p, making it one of the week's worst losers.

Xstrata's market wheelings didn't end there, either, and late in the week the Switzerland-based mining giant's courting of Anglo American came to a bubbling head. Xstrata has never made any secret of its interest in merging with Anglo, claiming a combined £40bn firm would generate 'substantial operational synergies', but Anglo's board has not been keen to play ball. The UK Takeover Panel has issued a 'put up or shut up' order, giving Xstrata until October 20 to make a formal takeover bid for its rival miner, or walk away for six months.

Both firms found investors pessimistic such prospects, with Xstrata down 50.5p at 853.5p and Anglo 182.5p worse off at 1,876.5p.

It was a difficult week, too, for government-owned banks. Lloyds Banking Group, now 43% taxpayer-owned, is tipped to opt out of the government's Asset Protection Scheme and embark on a £15bn rights issue. But investors weren't taking chances and shares took a 8.7p hit, falling to 94.75p.

Fellow government-owned outfit RBS followed suit with a 5.36p loss to finish at 46.64p.

Retailers Marks & Spencer and Argos-to-Homebase giant Home Retail were other notable fallers. Home Retail shed 10.8p to 286p after Credit Suisse downgraded it to underperform from neutral. The broker said it is worried about Argos and believes that structural risks and increased competition are likely to restrict its ability to grow medium-term sales and margins.

M&S, 18.2p below at 349.5p, reported some excellent summer sales figures on Wednesday, but investors were discouraged by executive chairman Sir Stuart Rose's comments that he expects 2010 'to be a tough year'.

'I would say we are at the bottom, but I wouldn't say we're about to go upwards,' Rose said.

On the smaller markets, AIM-listed leisure and casino specialist AMZ Holdings dropped heavily on some bad news from Asia. AMZ had hoped that a local referendum in Penghu, Taiwan last week would see its buildings in the location approved as gaming resorts. But voters disagreed, and the company now anticipates 'significant' difficulties in raising the capital to cover its £1.6m loan obligations due on 24 October.

The news had traders worried, too, and shares lost a mammoth 94p (67.9%) over the week, closing at 44.5p on Friday. Shares are now in negative territory for the twelve months to date. Chief executive Michael Treanor admitted he was 'disappointed' with the referendum result, but added that AMZ were in prime position to benefit from the 'dramatic increase in cross-straits and regional tourism' in Penghu, which is one of the top tourist destinations for mainland Chinese.

Also on the AIM, Enegi Oil gushed 7.87p (134%) to 13.75p after revealing its wholly-owned subsidiary, PDI Production, intends to resume operations at its well at Garden Hill South, Western Newfoundland.

Chief executive Alan Minty commented: 'We are delighted to re-commence operations. When we originally drilled the well earlier this year the prevalent conditions and high costs associated with winter operations made the well uneconomic at that time. Flowing the well now will not only provide us with some revenues, but will also provide further technical information about the well.'

 

The week ahead:

The retail sector will be in the spotlight next week with results and trading statements from the likes of Tesco, Carphone Warehouse and Sainsbury's.

The spoils of the loyalty card war will be under scrutiny on Tuesday and Wednesday when Tesco and Sainsbury's issue respective updates. Tesco, which is tipped to issue solid interim figures, offered double Clubcard points in August as it fought to retain its dominance of the UK grocery market.

But recent figures suggest Tesco has continued to lose ground to rivals, with its market share slipping from 31.1% to 30.9% in the 12 weeks to 6 September, and Sainsbury's recently launched a new voucher loyalty scheme as part of its fight for market share.

Recruitment firm Hays' trading update on Thursday has been overshadowed by news of its eye-watering £30.4m fine from the Office of Fair Trading.

Hays took by far the biggest of almost £40m in penalties handed out to six firms by the competition watchdog for cartel activities in the supply of workers to the construction industry.

And TalkTalk broadband firm Carphone Warehouse's trading statement on Thursday will provide few fireworks for investors, analysts predict, with a 'solid' results expected by analyst Andy Parnis at Nomrua.