Commods drag FTSE lower; retailers’ budget relief

By Jon Hopkins

LONDON (BestGrowthStock) – Weaker commodity stocks pulled Britain’s top share index lower on Tuesday, while retailers got a lift from the first, emergency budget from Britain’s new coalition government after an expected valued added tax rise was delayed.

At the close, the FTSE 100 (.FTSE: ) was down 52.1 points, or 1.0 percent, at 5,246.98, having hit its highest closing level in a month on Monday.

British finance minister George Osborne unveiled big spending cuts and tax rises in the tightest budget in a generation on Tuesday, but many of the changes were well-flagged or less harsh than feared.

Retailers gained the most as a delay in a widely forecast hike in value added tax to 20 percent from 17.5 percent until January 4, 2011, lifted expectations for bumper sales in the run-up to the change.

Home Retail Group (HOME.L: ), Next (NXT.L: ) and Marks & Spencer (MKS.L: ) all rose 1.3 to 1.6 percent.

“Increasing VAT … from 4th January 2011, will boost short-term spending on consumer goods in the months ahead, so retailers will be very busy until the end of the year,” said Julian Tolley, head of research at HB Markets.

Supermarket chains WM Morrison (MRW.L: ), Tesco (TSCO.L: ) and Sainsbury (SBRY.L: ) added 0.4 to 2.6 percent on relief that VAT would not be extended to food, as some had feared.

Banks were weak overall, but ended off lows after George Osboure said an expected levy on the sector, from January 2011, would generate 2 billion pounds a year rather than the 3 billion pounds expected by some analysts.

Barclays (BARC.L: ), HSBC (HSBA.L: ), and Standard Chartered (STAN.L: ) lost 0.1 to 2.0 percent, while part-nationalized lenders Royal Bank of Scotland (RBS.L: ) and Lloyds Banking Group (LLOY.L: ) gained 0.7 and 4.1 percent, respectively.

On the second line, housebuilders rose on relief that no tax was imposed on new house builds and that a capital gains tax increase would start from midnight on Tuesday, preventing a flooding of the market by people seeking to avoid it.

Among the best off, Barratt Development (BDEV.L: ) gained 4.4 percent, and Taylor Wimpey (TW.L: ) added 3.1 percent

“The UK Budget came with a lot of missing details but good political management. It looks reasonably sensible – pain spread for future gains – and probably positive vs. expectations,” said Philip Isherwood, equity strategist at Evolution Securities.


Away from the budget, commodity issues were the biggest blue-chip fallers, retracing some of the gains made on Monday when China’s decision to allow bigger daily moves in the yuan fueled belief it might boost its ability to buy imported goods.

A bout of skepticism over the extent of any increase in demand, however, pushed miners and energy stocks lower, with Kazakhmys (KAZ.L: ) and Tullow Oil (TLW.L: ) among the stand-out losers, down 3.2 and 3.1 percent, respectively.

BG Group (BG.L: ) was also a top FTSE 100 faller, down 3.6 percent, impacted by a Goldman Sachs downgrade to “neutral” from “buy” on valuation grounds in a Europe-wide review of the energy sector.

Elsewhere in the sector, BP (BP.L: ) shares hit a fresh 13-year low on Tuesday, down 4.4 percent, taking the total drop to over 50 percent since a massive oil spill started in the Gulf of Mexico in April.

Among individual blue-chip movers in London, Carnival (CCL.L: ) shed 5 percent as the cruises operator projected weaker-than-expected third-quarter results on rising fuel costs and currency factors.

Whitbread (WTB.L: ) gained 3.6 percent as the hotel operator said first-quarter sales rose 7.6 percent, boosted by a strong performance at its Premier Inn chain.

U.S. blue chips (.DJI: ) were up 0.3 percent by London’s close, in choppy trade after data showed sales of used homes unexpectedly fell in May.

Stock Market Investing

(Graphics by Scott Barber; Editing by Simon Jessop)

Commods drag FTSE lower; retailers’ budget relief