Market Report: Antofagasta knocked by copper price worries

The London market regained its composure last night, moving closer to the 5,600-point mark, but Antofagasta fell back amid caution about the prospect of weaker copper prices.

Analysts at UBS said factors such as fading industrial momentum in the Western world, the risk of policy tightening in key emerging economies and the withdrawal of money from commodity-focused funds could undermine the price of the metal in the fourth quarter of the year. That, in turn, could weigh on copper producers such as Antofagasta, which ended the session at 1,181p, down 30p, and Kazakhmys, which, though more resilient, also failed to make any headway and eased back by 7p to 1,421p.

"Historically, the Antofagasta and Kazakhmys share prices have demonstrated a strong correlation to the copper price, a characteristic that has become more pronounced over the last couple of years," UBS said, downgrading the two stocks to "sell".

"The copper price assumption is the key earnings driver at both," it added. "This comes as no surprise as copper sales represent around 80 per cent of total turnover."

In the wider mining sector, Randgold Resources closed 75p lower at 6,485p as investors booked profits even as gold prices struck new records. The yellow metal, in favour owing to the possibility of further monetary easing in the US and UK, rose to $1,298.30 per ounce at one point, edging ever closer to the milestone of $1,300 per ounce. The silver price was also strong and supported the Mexican producer Fresnillo, which rose by 15p to 1,232p.

Overall, the market was driven up following some early strength on Wall Street. Investors on both sides of the Atlantic cheered the release of positive economic data, with figures showing that new orders for long-lasting US manufacturing goods had ticked up in August, while business spending surged. The reports offset confirmation of flat American sales of new homes, helping the FTSE 100 to rise by nearly 1 per cent or 51.4 points to 5,598.48. The mid-cap FTSE 250 index was also strong, gaining 112.98 points to close at 10,539 last night.

The shift in sentiment aided the rumour mill, with speculators building on the rising appetite for risks. There was renewed talk of bid interest in ARM, the Cambridge-based computer chip designer, which rose more than 6 per cent, or 23.8p, to 414.6p. Instead of being mooted as a target for Apple or Intel, however, this time round the chatter focused on Oracle. Its chief executive, Larry Ellison, has signalled interest in acquisitions to strengthen the American technology company, and has indicated that a semiconductors business would fit the bill.

Bid rumours also circulated around the luxury goods brand Burberry, which rose nearly 6 per cent, or 56.5p, to 1,002p. Again, instead of focusing on Burberry's US rival Coach, which has been suggested as a possible suitor in the past, Burberry was said to be attracting interest from a private-equity investor. Details were thin on the ground, however, with the reports offering no clues about either the identity of the likely bidder or the possible offer price.

Elsewhere, Credit Suisse boosted the mood for commercial real estate, upgrading the sector to "benchmark" on account of such factors as growing stability in rents and improving economic data in Britain. The broker also highlighted the gap between property and government bond yields, which is now close to its widest on record.

"The possibility of further quantitative easing and the consequent decline in government bond yields has pushed the yield gap firmly in favour of property," Credit Suisse said. It named as its top picks Hammerson, which rose by 17.1p to 406.2p, and British Land, which was 7.8p higher at 472.3p.

Though positive, the broker went on to say that it still recommended British banks over real estate. Among the lenders, Royal Bank of Scotland closed 1.33p higher at 49.29p, while Lloyds gained 1.56p to reach 76.65p as concerns about the Irish banking industry took a back seat. HSBC, which remained in focus as the market awaited further news of possible management changes, also ended higher, adding 2.3p to 666.3p.

Amec, the oil services and engineering group which was supported by JPMorgan Cazenove on Thursday, was further boosted by the watchers at UBS, who reiterated their "buy" view and highlighted the prospect of improving growth in the second half of the year. "We believe the second half is likely to see a pick-up in organic growth, in line with the sector, and that full-year margins may be closer to 9 per cent than 8.5 per cent," the broker said. The comments helped Amec's stock to rise 20p to 993.5p last night.

Further afield, the fund manager Aberdeen Asset Management added 7.4p to close at 159.8p after Evolution turned positive ahead of an update next week. "The continued strength of Aberdeen's equity inflows increases the upside risk to our forecasts, thus increasing the discount Aberdeen trades at relative to the wider asset management sector," the broker said. After Aberdeen was boosted on Thursday by rumours of stake-building by Mitsubishi UFJ Financial, Evolution revised its stance on the stock to "buy".

FTSE 100 Risers

Standard Chartered 1,929.5p (up 67.5p, 3.6 per cent)

Lenders firm up as worries about the Irish banking begin to fade.

Smith & Nephew 576.5p (up 10p, 1.8 per cent)

Rises as Matrix initiates coverage with a "buy" rating, 673p target price.

Rio Tinto 3,695.5p (up 42.5p, 1.2 per cent)

To invest $230m to raise the capacity of its iron ore operations in Australia's Pilbara region.

FTSE 250 Risers

Imagination Technologies 384.8p (up 28.4p, 8 per cent)

Rises on the read-across from renewed talk of bid interest around ARM.

ITV 58.95p (up 2.25p, 4 per cent)

Gains as Barclays Capital switches its stance to "overweight" from "equal-weight".

Shaftesbury 452p (up 10.6p, 2.4 per cent)

Credit Suisse upgrades its view on the UK real estate sector to "benchmark".

FTSE 100 Fallers

National Grid 543p (down 5.5p, 1 per cent)

Defensive stocks struggle to attract interest as the market regains its appetite for risk.

Anglo American 2,535p (down 15.5p, 0.6 per cent)

Loses ground as UBS revises its recommendation to "neutral" from "buy".

African Barrick Gold 595.5p (down 3.5p, 0.6 per cent)

Eases amid profit-taking as gold prices edge closer to the $1,300 per ounce mark.

FTSE 250 Fallers

Jardine Lloyd Thompson 577p (down 6p, 1 per cent)

Chairman Andrew Agnew resigns with immediate effect.

Robert Wiseman Dairies 339.4p (down 0.6p, 0.2 per cent)

Investec scales back its target price to 395p from 560p.

JD Sports Fashion 802p (down 3p, 0.4 per cent)

Remains weighed down by profit-taking following recent, strong gains.