London close: Losses pared, but stocks still down on macro worries

22nd Feb 2012 16:32

- Risk of a Eurozone recession increase as PMIs show contraction.- Fitch downgrades Greece from CCC to C.- Rexam up 7pc after FY results, Vedanta falls 5pc after yesterday's surge.Stocks rallied in afternoon trade in London, recovering from the slump experienced in mid-morning. However, the Footsie still closed in the red on the back of global economic worries: Fitch moved to downgrade its rating for Greece just two days after the nation received a crucial bailout; while gloomy economic data from the Eurozone fuelled concerns that economic activity in the region may remain subdued for some time.Eurozone finance minsters granted Greece its next €130bn in aid on Monday evening, a move that was crucial to help the heavily-indebted nation avoid a near-term disorderly default. However, the market reaction to the long-awaited deal was rather muted though - the Footsie fell 0.29% yesterday - with doubts still remaining over the nation's longer-term outlook. Fitch Ratings has today downgraded Greece's long-term foreign and local currency issuer default ratings (IDRs) from 'CCC' to 'C' following yesterday's bailout deal. "Fitch considers that the proposal to reduce Greece's public debt burden via a debt exchange with private creditors will, if completed, constitute a rating default, and result in the country's IDR being lowered to 'Restricted Default' ('RD') upon completion." Meanwhile, the Eurozone's Purchasing Manager Indices (PMIs) compiled by Markit Economics for February revealed that the European economy is still suffering from a weak economic environment, with an improvement in the manufacturing sector being offset by a slight decline in services. The Eurozone PMI Composite Output Index fell from 50.4 in January to 49.7 this month. "A retreat back below the 50.0 no-change level for the Eurozone PMI is a disappointment, and highlights the ongoing risk that the region may be sliding back into recession," said Markit's Chief Economist Chris Williamson. Earlier in the day, the HSBC China PMI for January rose to 49.7 points, above the reading of 48.8 seen in the month before, according to preliminary data. However, the new export orders sub-index is said to have changed direction and begun to contract. In domestic news, minutes of the Monetary Policy Committee (MPC) meeting are out and they show that while members voted unanimously to keep interest rates at 0.5%, two members (Posen and Miles) argued in favour of increasing its asset purchase programme by £75bn, as opposed to the £50bn finally approved. "We do not view the minutes as challenging our policy forecast that there is likely to be no QE extension in May, and so more downside news will be needed to prompt a further increase," said analysts at Barclays Capital.REXAM JUMPS 7%, WHILE VEDANTA DROPS 5%Consumer packaging company Rexam was the high riser of the day, gaining over 7% after it saw underlying profits race ahead of sluggish sales on the back of a better than expected performance in its Beverage Cans business, primarily in Europe. Meanwhile, investors were welcoming the company's plans to spin off its personal case business.Vedanta Resources was the worst performer, falling 5%, pulling back after yesterday's 7% surge on the back of speculation that it is looking to merge its two Indian subsidiaries, Sterlite and Sesa Goa. Credit Suisse has said today that "any progress on restructuring or minority buy-outs would be a strong positive "but any such move wouldn't be easy. The broker highlighted Vedanta's attempt in 2008 to restructure KCM and Sterlite which met "significant resistance" and did not complete. Big news today was that Anglo-Dutch integrated oil company Royal Dutch Shell launched a bid for AIM-listed Cove Energy of 195p per share. Shares in Cove jumped over 25% while Shell's was trading broadly flat. The deal values the east Africa-focused company at £992.4m, a 73.3% premium to the closing price of 112.5p on January 4th (the last day before Cove put itself up for sale). Merchant Securities says that the bid has a strong read-across for companies with assets in similar geographies to Cove, such as Rockhopper Exploration and Ophir Energy, both of which were rising strongly today. Supermarket giant Tesco was among the fallers after Bank of America Merrill Lynch downgraded the stock from neutral to underperform. Meanwhile, in a separate research note, downbeat comments by the US investment bank on the outlook for the UK grocers may have been weighing on the wider sector with Marks & Spencer and Sainsbury in the red. In other broker news, Vodafone was being weighed down by comments by Credit Suisse which lowered its earnings forecasts and target price "to reflect partly a more downbeat view of Vodafone UK."British Airways owner International Consolidated Airlines was a heavy faller after a strike at Frankfurt Airport forced many flights to be cancelled. According to the Wall Street Journal, the GdF labour union says that workers at the country's largest airport will resume their duties later on this evening.FTSE 250: GALLIFORD TRY, HAYS, LOGICA RISE STRONGLY Housebuilding and construction firm Galliford Try doubled its interim dividend and delivered strong profit growth. Pre-tax profit rose to £32.2m for the half year ended 31 December 2011 from £17m the same time a year earlier. Group revenue climbed to £746.8m from £575.9m previously. Recruitment firm Hays jumped despite paring its dividend to 0.83p from 1.85p per share the year before. Nevertheless, net fees in the second half of 2011 rose 15%, or 11% in a like-for-like (LFL) basis to £373.8m from £326.1m at the half-way stage in 2010. After a couple of warnings last year about weakening revenues it was with some relief that Logica, a provider of computer programming contractors, said its 2011 results were in line with guidance it issued in mid-December. BCFTSE 100 - RisersRexam (REX) 413.00p +7.44%Capita (CPI) 688.50p +6.50%Meggitt (MGGT) 388.20p +1.97%BG Group (BG.) 1,508.00p +1.86%Smiths Group (SMIN) 1,066.00p +1.81%Essar Energy (ESSR) 125.20p +1.79%Petrofac Ltd. (PFC) 1,593.00p +1.72%Randgold Resources Ltd. (RRS) 7,245.00p +1.54%Fresnillo (FRES) 1,777.00p +1.54%BAE Systems (BA.) 324.90p +1.34%FTSE 100 - FallersVedanta Resources (VED) 1,380.00p -5.02%Evraz (EVR) 397.00p -3.80%Barclays (BARC) 239.20p -3.45%Hargreaves Lansdown (HL.) 465.00p -3.43%Royal Bank of Scotland Group (RBS) 27.33p -3.12%International Consolidated Airlines Group SA (IAG) 165.20p -2.77%Man Group (EMG) 131.70p -2.30%Tesco (TSCO) 315.40p -2.26%Reckitt Benckiser Group (RB.) 3,500.00p -2.18%Carnival (CCL) 1,903.00p -2.01%FTSE 250 - RisersGenus (GNS) 1,242.00p +10.20%Devro (DVO) 312.00p +9.32%Galliford Try (GFRD) 545.00p +8.78%Hays (HAS) 87.40p +7.90%Barratt Developments (BDEV) 139.80p +7.79%Ophir Energy (OPHR) 392.00p +7.25%Rank Group (RNK) 138.40p +6.54%Logica (LOG) 86.65p +6.45%Afren (AFR) 140.50p +5.88%Travis Perkins (TPK) 1,059.00p +4.75%FTSE 250 - FallersKenmare Resources (KMR) 58.15p -5.45%CSR (CSR) 251.00p -3.79%Regus (RGU) 112.30p -3.52%Domino's Pizza UK & IRL (DOM) 460.00p -3.42%Home Retail Group (HOME) 105.70p -3.03%Cable & Wireless Worldwide (CW.) 26.29p -2.70%Aquarius Platinum Ltd. (AQP) 142.70p -2.66%Unite Group (UTG) 185.70p -2.62%TUI Travel (TT.) 202.00p -2.56%Restaurant Group (RTN) 292.00p -2.37%