After hitting a near ten month low on Thursday, markets managed to regain some lost ground, helped by better than expected US jobs figures.
The FTSE 100 finished 81.52 points or 1.2% higher to 6527.91 on Friday, as bargain hunters returned after the recent slump and the US reported 248,000 new jobs were created in September, better than an expected figure of 215,000.
But the index has fallen 121 points or 1.8% since Monday after a 2.76% slide the previous week, on a toxic cocktail of concerns. Slowing economic growth, as evidenced by this week's manufacturing and service sector surveys, a disappointing update from the European Central Bank which failed to provide the hoped for stimulus to boost the flagging eurozone, worries about the repercussions of the current protests in Hong Kong, air strikes on Isis, the troubles in Ukraine and the spread of Ebola.
Tesco continued its slide in the wake of last month's warning it had discovered a £250m profit shortfall. Its shares lost 6.05p to 172.15p, a new eleven and a half year low, on talk of a possible dividend cut and a £3bn rights issue. The cash call suggestion was denied to Reuters, with a spokesman saying it had "no current plans" for such a move.
Other supermarkets continued to lose ground amid the relentless market share gains of discounters Aldi and Lidl. Morrisons dipped another 1.1p to 157.8p but despite this week's disappointing results, J Sainsbury recovered 2.6p to 227.4p.
Commodity shares were under pressure again on concerns about Chinese growth prospects, as well as the recent falls in the oil price. With the strength of the dollar and talk of oversupply, Brent Crude fell another 1.7% on Friday to $91.8 a barrel.
Fresnillo fell 29.5p to 720p, Rio Tinto lost 38.5p to 2949.5p and Tullow Oil slipped 9.5p to 600p.
RSA Insurance fell 5.7p to 469.9p despite Deutsche Bank raising its price target from 440p to 505p.
But easyJet soared 88p to £14.59 as the budget airline raised its full year profit forecast from £545m-£570m to £575m-£580m, as it benefited from a strong summer travel period, lower fuel costs, favourable currency movements and a strike at Air France, which added around £5m to revenues.
British Airways and Iberia owner International Airlines Group was close behind, adding 17.3p to 365.2p, while cruise company Carnival sailed 101p higher to £24.44, helped by the falling fuel prices.
Tui Travel - in the throes of merging with parent Tui AG - rose 12.9p to 393p as Natixis raised its price target from 395p to 420p in the wake of Thursday's trading update. Oriel was also positive, saying:
The update confirms that Tui Travel is on track to deliver an outcome for 2013/14 in line with our expectations. We consider the merger is a logical combination of two groups, which was virtually inevitable at some stage. The merger will unlock trapped value in Tui AG and should produce useful benefits, with Tui Travel shareholders benefiting from strong earnings per share accretion. Accordingly we consider the shares have good upside.
United Utilities added 25.5p to 810p as it responded to regulator Ofwat's draft determination, saying it was "seeking amendments to a small number of relatively minor specific issues." As part of this, customers could see their bills cut by up to 4.1%.
Among the mid-caps Debenhams ended 1.75p higher at 61.75p after Thursday's late news that Mike Ashley's Sports Direct International, 15p better at 610p, had snapped up a 4.6% stake in the department store group to add to its recent derivative trade which could leave it holding a total of 11.2%.
But transport group Go-Ahead, whose Govia joint venture recently took over the Great Northern and Thameslink franchise, lost 16p to £25.23 after Shore Capital cut its recommendation from buy to hold. Analyst Martin Brown said its target of more than £100m of operating profit from its bus business by 2016 - the Target 100 project - was on track. But he added:
In terms of UK bus we now believe the market has all but baked in the delivery of Target 100, leaving little room for significant outperformance versus expectations. To our minds, it is therefore the rail business that must deliver in order for the shares to materially push on from here.
Unfortunately as a starting point, we are significantly downgrading our rail forecasts for 2015 and 2016 by 44% and 47% respectively. These downgrades result in our group operating profit forecasts falling by 15%, 23% respectively.
The broker has cut 2015 profit forecasts for Southeastern, reflecting a £7m shortfall in the contribution from Great Northern and Thameslink compared to earlier expectations, and a £10m loss from London Midland rather than breakeven. There are a number of reasons behind the downgrades; below we look at each year in turn. For 2016, Brown said:
London Midland is again the source of much of the downgrade with our forecast for this franchise of a £12m profit, now a £8m loss. The good news for investors is that the London Midland franchise ends in April 2016, with a direct award to Go-Ahead out to June 2017 anticipated ahead of the conclusion of bidding process for the new franchise. In addition, we introduce bid costs of £8.5m for 2016 for the first time. Clearly this a negative in the short term, however it also reflects Go-Ahead's recent wins and momentum in rail, success breeds success or words to that effect. Our rail central costs also rise by £1m.
We remain firm supporters of the Go-Ahead management team and the strategy they continue to implement, however [the soon to be awarded] Crossrail aside, with no significant rail franchise news likely until the end of 2015 we believe there is better value elsewhere in the sector.
In our opinion in order to reach £30 a share Go-Ahead would need to increase its Target 100 towards Target 115- 120, which seems unlikely in the near term or it needs to win both Transpennine and Northern franchises. While the latter is most definitely possible, it will be 12 months before we find out.
While not in our forecasts, we see scope for Go-Ahead to return via a special dividend or buy back up to £150m of cash to shareholders or around 14% of its market cap in the year to June 2016.
Finally Software Radio Technology, which supplies technology and products to track marine vessels around the globe, jumped 4.5% to 26p after it reported a 70% increase in first half revenues to £5.4m and a profit of £0.5m, compared to a £434,000 loss the previous year.
The company, originally bought from Securicor in 2002 after current chief executive Simon Tucker overheard a train conversation suggesting that it might be up for sale, specialises in products using the International Marine Organisation's AIS standard, and has around 95% of its market. Part of its growth has come from governments mandating ship owners to use tracking equipment, and a key US ruling on the issue for American shipowners is due in December. If passed as expected, some 28,000 boats will need to install the equipment in seven months, a prospect which analysts believe could be worth some $35m in revenues to the business. Tucker said:
With many more projects in progress, coupled with the existing mandates and the pending US mandate in particular, we are excited about the future.
