Shares continue to slide

The FTSE 100 was down 142.5 points at 3740.86 and the FTSE 250 fell to 5593.89, down 199.67 points, at 11.48am today. Falling metals prices proved a drag on the heavyweight mining issues, sending Rio Tinto to 2068p, down 9.18 per cent or 209p, Anglo American to 1128p, down 119p, and Lonmin to 1073p, down 101p.

Citigroup, which weighed in on the metals and mining market this morning, said the sector faces “a perfect storm” and share prices are unlikely to recover before the New Year.

“The UK metals and mining sector continues to face short term headwinds from falling commodity consumption, a rising US dollar, and an aggressive unwind of momentum money together with negative earnings revisions. We believe this will place further short term pressure on the sector and, while we expect a recovery in share prices, this is unlikely to occur before the New Year,” the broker said, adding:

“We calculate that the median Return on Invested Capital (ROIC) for the sector is likely to shrink from around 27 per cent over the past three years to 15 per cent over the next three years. Nevertheless, the market seems the market seems to be already pricing in returns to fall to around 9 per cent, pushing the share prices to very low levels.”

Moving up

Cruise operator Carnival was up 4p at 1498p thanks to weak oil prices. Similar factors boosted Stagecoach, which also bucked the market trend, gaining 4.2p to 191.6p.

UBS boosted Old Mutual, the insurer which was up 1.7p at 45.1p. The broker upgraded the stock to “buy” from “neutral”, arguing that the shares have been “oversold on excessive risk aversion, which should normalise”.

In the banking sector, HBOS, up 5.1p at 65p, and Lloyds TSB, up 10.2p at 176p, were firm following talk that their proposed merger was on track. Both stocks also benefited from a shift in focus from UK-focused banks to those with extensive emerging markets operations.

Recent turmoil in places like South Korea, Ukraine and Pakistan led to increased selling pressure on HSBC, which lost 7.36 per cent or 51.25p to 644.75p, and Standard Chartered, which was down another 6.2 per cent or 47p at 711p. To make things worse for Standard Chartered, Citigroup predicted this morning that that the bank needs to raise $5bn of capital.

“We believe that the group needs to raise $5bn of capital, of which at lease $3bn is likely to be equity,” Citi said, adding:

“The would take the core Tier 1 ratio from 6.1 per cent at the first half of 2008 to 7.6 per cent on a pro forma basis, in line with HSBC but still below the Asian bank average of 10.5 per cent. Stronger capital ratios are likely to be necessary given slowing Asian economies and the recent rapid growth of the wholesale loan book.”

Moving down

WPP, which is due to update the market later this week, was down 5.95 per cent or 19.25p at 304.5p after Cazenove said that the advertising group’s balance sheet will be “more vulnerable” after the Taylor Nelson Sofres acquisition.

“As growth slows, we believe investor focus will increasingly turn to WPP’s balance sheet, which historically has seen a material increase in leverage ratios in advertising downturns,” the broker said, adding:

“We now forecast the credit rating to be cut, the reduced share buyback to be cancelled and no dividend growth. Still, covenant headroom narrows to just 12 per cent next year on our forecasts, which are significantly below consensus

With management still having to abandon guidance for next year, the scope for positive news looks limited although we recognise valuation multiples to do provide increasing support for the longer term value case following material underperformance this year.”

Insurer Aviva was the weakest on the FTSE 100, down 12.13 per cent or 30p at 217.25p ahead of an update tomorrow.