FTSE CLOSE: Footsie falls as brokers downgrade UK construction companies; Oil slips below $50 a barrel

17.15 (close): The London market ended the week in the red after a downbeat note on housebuilding and as oil prices began falling again.

Shares in the main listed UK housebuilders dropped by as much as 5 per cent after broker Jefferies warned economic and political uncertainty had clouded the outlook for mortgage approvals and housing transactions.

The FTSE 100 Index was 68.8 points lower at 6501.1, as Brent crude fell below 50 US dollars a barrel after stabilising over the previous two days.

Construction: Broker Jefferies downgraded the sector today

Construction: Broker Jefferies downgraded the sector today

Official jobs data showed that the US capped its best year for hiring in 15 years with a healthy gain in December. The US economy added 252,000 jobs last month, totalling nearly 3million jobs for the year.

The pound stemmed recent losses against the US dollar after Britain's trade deficit fell to a 17-month low in November - helped by cheaper oil - and the manufacturing sector grew at its strongest pace in seven months.

Sterling was about 0.4 per cent higher versus the greenback, at 1.52, after the US jobs data also showed a drop in average hourly pay last month, raising concerns that the Federal Reserve will not be in a hurry to raise interest rates. The pound was marginally stronger against the euro, at 1.28.

The other focus of the session was on the property sector after Jefferies removed its buy ratings on a number of stocks.

The sector has enjoyed a strong run over the last couple of years as its recovery has been boosted by Government schemes such as Help to Buy.

But Taylor Wimpey fell 5 per cent, or 7.1p to 125.7p after it was cut to hold from buy, increasing the focus on the company's trading update on Monday.

Fellow FTSE 100 newcomer Barratt Developments slipped 23.3p to 431.4p and Charles Church owner Persimmon was down 80p to 1459p.

The sell off was not confined to the building sector as property search firms Rightmove and Zoopla dropped by 98p to 2157p and 10.2p to 171.3p in the FTSE 250 Index.

Meanwhile Tesco edged lower by more than 2 per cent after a credit downgrade from ratings agency Moody's following a stellar previous session when the stock had climbed 15 per cent.

Investors were yesterday cheered by signs that a slide in sales was easing off, as well as plans by new boss Dave Lewis to shut unprofitable stores and cancel projects to build 49 new sites.

But the gains were pared back today as the stock fell 5.15p to 204.1p while rivals which had also been boosted by its update dropped too - with Sainsbury's down 10.6p to 241.8p and Morrisons off 8.4p at 176.3p.

Marks & Spencer shares were initially 2 per cent higher, but fell back to close up 1.1p at 448p after disappointing clothing and homeware sales figures for the Christmas period were published on Thursday.

The biggest risers in the FTSE 100 Index were ITV up 4p at 213.5p, Friends Life up 6.6p at 371.7p, Aviva up 7.2p at 490.4p and John Matthey up 50p at 3506p.

The biggest fallers in the FTSE 100 Index were Taylor Wimpey down 7.1p at 125.7p, Persimmon down 80p at 1459p, Barratt Developments down 23.3p at 431.4p and Morrisons down 8.4p at 176.3p.

15:00:The FTSE 100 index continued to shed gains it had made yesterday as it looked set to end the week in the red, weighed down by construction stocks, trading 39.72 points lower at 6,530.24.

Meanwhile, US markets opened slightly lower as investors digested jobs data, which showed strong job creation but also a drop in wages.

Some 252,000 jobs were created in December in the US and November’s count was revised up from 321,000 to 353,000, the highest since January 2012.

US markets opened lower as investors digested jobs data, which showed strong job creation but also a drop in wages

US markets opened lower as investors digested jobs data, which showed strong job creation but also a drop in wages

Unemployment fell to 5.6 per cent in December, only 0.1 per cent above what the Federal Reserve deems to be full employment. 

But wages fell by 0.2 per cent on the month dragging the yearly figure back to 1.7 per cent. And labour market participation rate fell to 62.7 per cent, the lowest since December 1977.

The drop in wages and fall in the participation rate are signs that large swaths of the American population are not part of the economic recovery calling into questions its longer term sustainability.

The Dow Jones fell 70.93 points to 17,836.94, the S&P lost 6.6 points to 2,055.54 and the Nasdaq dropped 7.21 points to 4,728.97.

While the eurozone struggles with deflation and economic stagnation and the ECB prepares to expand its stimulus measures, the US economy continues to pick up pace, with a rate rise expected later this year.

But the fact that wages aren't keeping up pace with job creation could keep the Fed on hold for longer than the minutes of the December meeting suggest, according to analysts. 

Craig Erlam, market analyst at Alpari, said that at first look the US jobs report was ‘extremely impressive’, but a drop in wages and participation took some of the shine off the report.

He said: ‘I don’t think this changes the outlook for the first rate hike this year but a couple more months of the same and they may be start to consider waiting a little longer until they are more convinced on the sustainability of the recovery.’ 

The dollar strengthened immediately after the report, as traders reacted to the job creation and unemployment numbers, before pulling back on less positive data on wages. 

Kathleen Brooks, research director UK EMEA, said: 'This could make the next few months interesting, and it remains to be seen if the US dollar uptrend can continue at the same pace if the Fed starts to sound wary on inflation. 

'For now the market is happy to ignore the wage data, but the big unknown to dollar bulls is how long this will last.' 

Peter Elston, global investment strategist at Seneca Investment Managers said: 'We probably need to keep an eye on the effect of the strong Dollar and whether or not ongoing oil rig closures will have a broader impact on growth. But for the time being recession risk remains extremely low.'

12:00: The FTSE’s morning was slight improved by better than expected manufacturing production and trade balance, but these figures couldn't rescue the index, which was down 31.78 points at 6,538.18 around lunchtime.The pound stemmed recent losses against the US dollar after Britain's trade deficit fell to a 17-month low in November - helped by cheaper oil - and the manufacturing sector grew at its strongest pace in seven months. Sterling was about 0.4 per cent higher versus the greenback at 1.51 and marginally stronger against the euro at 1.28.

But the main focus of the session was on the property sector, with house builders still the biggest losers of the day as, on top of an earlier brokers' downgrade of construction stocks, official figures out today showed a slump in construction output.

The Office for National Statistics said construction output fell by 2 per cent in November on the previous month, with all sectors other than private housing and infrastructure reporting a decline in new work.

Shares in the main listed UK housebuilders dropped by as much as 5 per cent after broker Jefferies warned economic and political uncertainty had clouded the outlook for mortgage approvals and housing transactions.

Taylor Wimpey fell 5 per cent, or 6.45p, to 126.35p today after it was cut to hold from buy, increasing the focus on the company's trading update on Monday.

Fellow FTSE 100 newcomer Barratt Developments slipped 21.75p to 432.95p and Charles Church owner Persimmon was down 62p to 1478p.

The sell-off was not confined to the building sector as property search firms Rightmove and Zoopla dropped by 93p to 2162p and 7.15p to 174.35p in the FTSE 250 Index. 

Meanwhile, supermarkets were also lower, after Tesco's received a credit downgrade from ratings agency Moody's.

Morrisons was down 6p, or 3 per cent, at 178.70p, Tesco was 4.85p lower, or 2.3 per cent, at 204.40p, and Sainsbury's fell 6.15p, or 2.5 per cent, at 246.25p.

Marks & Spencer shares, however, were 2 per cent higher - up 7.55p to 454.25p - as the department store chain put back losses seen yesterday after disappointing clothing and homeware sales figures for the Christmas period.  

9:00: The FTSE 100 index has opened 19 points lower, or 0.3 per cent, at 6,550.61, with construction companies hit after brokers downgraded the sector.

Taylor Wimpey was down nearly 5 per cent at 126.60p, after it was cut to hold from buy by Jefferies, while Barratt slipped 21p to 433.7p and Persimmon dipped 57p to 1482p after they were also downgraded.

Taylor Wimpey and Barratt Developments were both recently promoted to the FTSE 100. 

The construction sector has enjoyed a strong run over the last couple of years as its recovery has been boosted by Government schemes such as Help to Buy. 

Meanwhile Tesco edged lower by 2 per cent after a credit downgrade from ratings agency Moody's following a stellar previous session when the stock had climbed 15 per cent.

Investors were yesterday cheered by signs that a slide in sales was easing off, as well as plans by new boss Dave Lewis to shut unprofitable stores and cancel projects to build 49 new sites.

But the gains were pared back today as the stock fell 5.2p to 204p while rivals which had also been boosted by its update dropped too - with Sainsbury's down 7p to 245.4p and Morrisons off 5p at 179.8p.

The UK blue chip index closed up 2.3 per cent at 6,569.96 points in the previous session. 

Meanwhile, investors are awaiting US jobs data, which is expected to show that 240,000 jobs were created last month after November's outsized 321,000 increase, according to a Reuters survey of economists.

Focus will also be on UK manufacturing data and on commodity stocks as oil prices headed for a seventh weekly loss, with key producers showing no signs of cutting output in the face of a global supply glut.

Tony Cross, market analyst at Trustnet Direct, said: ‘UK production data will also be under scrutiny and positive numbers here will have the potential to help lock in some of these gains we’ve seen accrued since this latest rally got underway mid-week.

‘Ultimately however this could still go either way – the long list of geopolitical risks we see hasn’t disappeared and once they do surface, the outlook will be somewhat different.’

London copper was little changed near 4-1/2-year lows and was set to chalk up a fourth weekly loss because of continuing worries about demand from top consumer China and fragile growth in Europe.

China's annual consumer inflation hovered at a near five-year low of 1.5 per cent in December, little changed from November's levels, signalling persistent weakness in the economy but giving policymakers more room to ease policy to support growth.

German exports fell sharply in November and industrial output also declined, suggesting Europe's largest economy ended 2014 on a weak note. 

Stocks to watch today include:

TESCO - Moody's Investors Service downgraded Tesco to ‘junk’ yesterday, the first of the three major rating agencies to do so, on expectations profits will remain challenged due to structural shifts in the UK grocery market. Tesco shares surged 15 per cent yesterday after it announced cost cuts and asset sales.

OLD MUTUAL - Anglo-South African financial services firm Old Mutual will discuss with partner Kotak Mahindra upping its stake in their Indian joint insurance venture following a rule change, Old Mutual's chief executive said on Wednesday.

RESTAURANT GROUP - The company said that for the 52 week period ending December 28, its total turnover was up 9.6 per cent on the prior year. Like-for-like sales increased by 2.8 percent.

LAIRD - The British electronic components maker said its expectations for 2014 remained on track.

TED BAKER - The British designer clothing brand posted a 22.8 per cent increase in retail sales for 8 weeks from November 9 to January 3, while its gross margins were in line with expectations. It also said sales since Christmas had been particularly strong and it expected to end year with a clean stock position.

TUI GROUP - The world's largest leisure tourism company is buying luxury cruise ship MS Europa 2 for 278million euros in cash and debt, a spokesman said yesterday, to bolster results at its Hapag-Lloyd cruise business.

 

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