Market Report: Oil and mining stocks buck market sell-off

Eurasian Natural Resour-ces Corporation led the charge of the resource stocks yesterday as the London market, depressed by a spike in the price of oil, mounting fears for the state of the economy and uncertainty about the US financial system, succumbed to the bears.

The FTSE 100 ended a volatile week at 5,261.6, down 145.2, or 2.7 per cent, more than 20 per cent off its June 2007 high and deep in bear market territory.

Mining stocks, which make up 13.5 per cent of the benchmark index, and the oil and gas sector, which comprises 21.1 per cent, rallied. However, they failed to offset the impact of a sell-off in the retail and banking sectors as rising hostilities between the West and Iran pushed the oil price above $147 per barrel, and Wall Street worried about the financial health of Fannie Mae and Freddie Mac, the US mortgage market giants.

"I think over the last few days the market has been waiting for a reason to rally the domestic cyclical stocks and take profits in the resource stocks," said Roger Cursley, head of UK equity strategy at Investec. "But the tensions in the Middle East and uncertainty about the US financial system haven't helped and have driven the market down."

From the mining sector, ENRC claimed first place on the leader board, up 90p, or 8.6 per cent, at 1,137p as metals prices edged up.

Cairn Energy, at second place, took the crown in the oil and gas sector, up 102p at 2,844p.

Tullow Oil, at fourth place, firmed 24.5p to 866.5p and Ferrexpo claimed fifth place, up 7.25p at 319.25p.

In the retail sector, the higher oil price sparked concern about inflation, and its impact on consumer spending.

"You don't want consumers to be dealing with higher costs when the economy is slowing," said one trader.

Beside the oil price, uninspiring figures from John Lewis, which said sales fell 1.3 per cent in the week to 5 July, also sullied sentiment in the sector. Howard Archer, chief European and UK economist at Global Insight, said the softer sales "add to the evidence that consumers are now reining in their spending".

As a result, Kingfisher, which was hit by negative broker comment earlier in the week, traded lower and closed down 7.2p at 91.8p.

Marks & Spencer was 13p weaker at 227.25p and Next was down 43.5p at 852p.

The turmoil on Wall Street weighed heavily on UK financials and Royal Bank of Scotland closed down 17.2p at 182.7p. RBS was also weighed down by the news that Zurich Financial Services, the Swiss insurer, had pulled out of the auction to acquire its insurance assets.

In the wider sector, Standard Chartered lost 114p to 1,341p, Barclays was down 16.75p at 267.75p and Lloyds TSB was 17p weaker at 275.5p.

Enterprise Inns was the weakest stock on the FTSE 100, down 8.61 per cent or 28.5p at 302.5p, as investors filed out of consumer-related stocks. The pubs group was also hit by negative comment from Lehman Brothers.

"Our UK economists have cut GDP forecasts, and now assume a decline in GDP from the third quarter of 2008 to the first quarter of 2009 – taking us officially into recession," the broker said. "The pressure on the consumer continues and we expect will lead to very weak trading in the discretionary areas."

The FTSE 250 closed down 180.8, or 2.1 per cent, at 8,339.1. Lehman's assessment bore on Punch Taverns, which was the worst performer on the mid-cap index, down more than 11 per cent or 28p to 225p.

The broker noted that the pub group's recent analyst briefing on its securitisation and potential Reit [real estate investment trust] conversion had failed to excite the share price and said: "We look at the issues and conclude that in the current pessimistic environment, there is little Punch can do to reassure the bears."

On the upside, Taylor Wimpey gained 7.86 per cent or 2.75p to 37.75p following reports that the housebuilder is in talks to sell a one-third stake to a private equity investor.

Reacting to the news, Dresdner Kleinwort upgraded the stock to "hold" from "sell". The broker said: "We believe conjecture such as this will in the short term support the shares until there is clarification one way or another." Dresdner added that it maintains a negative view on the housebuilding sector as a whole.

Among small companies, Oxford Biomedica slumped 11p, or 59.46 per cent, to 7.5p after revealing that its TroVax therapeutic cancer vaccine had failed to meet its main goal in a clinical trial. The news prompted Panmure Gordon to downgrade the stock to "sell" from "buy".

The broker said: "The company's valuation now relies on ProSavin [a gene- based therapy for Parkinson's disease] that is undergoing phase I/II trial currently."