MARKET REPORT

From the FT.com

Inflation boost for supermarkets

Wm Morrison was among the top performers on Monday as supermarkets outperformed a flat FTSE 100.

The grocers found support after Nomura forecast food price inflation to return in March or April.

Rising commodity prices suggest inflation, traditionally a lead indicator of sector performance, is close to an inflection point, Nomuras team said.

Sales volumes have already bottomed out, so even mild inflation through 2010 should boost sales beyond the level currently baked into consensus earnings forecasts, it said.

Nomura moved from reduce to buy on Morrison, which rose 1.9 per cent to 290p. Not only does the stock look cheap based on 17 per cent earnings growth this year, there could be interesting strategic opportunities if its new chief executive reverses Marc Bollands policy of owning all real estate, it said.

Traders also noted industry data from TNS confirming a strong December, with sales up more than 8 per cent for the big four grocers.

Morrison, with sales growth of 12.8 per cent, was the clear leader.

Director cuts Next stake
Andrew Varley raised nearly 183,000 by cutting his holding in Next on Monday.

Mr Varley, group property director, sold 8,879 shares at between 20.57 and 20.59 apiece, reducing his total holding to 61,008. He is Nexts longest-standing executive director, having joined the group in 1985 and stepped up to the board in 1990.

Shares in the retailer closed 0.6 per cent higher at 20.52.
The FTSE 100 ended little changed for a fifth successive session, with the index ending 3.83 points higher at 5,538.07.

Land Securities was the days biggest blue-chip gainer, rising 2.9 per cent to 683p. Goldman Sachs added the stock to its conviction buy list in a sector note.

Rising demand for office space at a time when new supply is limited is likely to lead to a strong recovery in prime office rents from 2011, said Goldman.

Land Securities shares offer good exposure to positive London office market trends at a relatively attractive valuation.

Kingfisher was up 2.3 per cent to 230p after an upgrade to buy from Execution. In an otherwise cautious note on UK consumer spending in 2010, the broker said: We estimate 75 per cent of Kingfishers growth over the next three years will come from outside of the UK.

Oil stocks provided some support after Citigroup raised its 2010 oil price forecast to $80 a barrel from $65.

Citi added BP to its buy list, helping the shares gain 2.2 per cent to 635p. This meant BP overtook Royal Dutch Shell as Europes largest oil company by market value.

As part of the same research, Citi upgraded Cairn Energy to buy based on its Greenland exploration prospect and the chances of a positive surprise from India at its next scheduled update in March. It also turned positive on Afren to gain exposure to Nigeria.

Shells B shares added 1 per cent to 18.53. Cairn closed at a record high, up 2.3 per cent to 370p, while Afren climbed 4 per cent to 103p.

Tullow Oil rose 0.8 per cent to 13.30 following news that it was looking to list shares on Ugandas local stock market. Dealers said the move was likely to help ease political tensions surrounding its attempt to buy assets from Heritage Oil, down 1.1 per cent to 496p.

Stronger-than-expected Chinese import and export data helped lift the mining stocks, but the gains soon faded ahead of results overnight from Alcoa. Anglo American dropped 1.8 per cent to 28.45 while Xstrata fell 1.8 per cent to 12.24.

SABMiller fell 2 per cent to 82p after it unexpectedly conceded to Heineken in the auction for Femsa, the Mexican brewer.

Ownership and competition issues appear to leave few options for further large-scale consolidation in the sector, said Shore Capital. We are therefore concerned over what SABs next move will be.

Icap slid 1.3 per cent to 450p on word that HSBC was placing 10.3m shares, about 1.7 per cent of the total, at between 438p and 442p each.

Among the mid-caps, Aegis edged 0.3 per cent higher to 119p after Martin Sorrell, WPP chief executive, repeated his long-held view that the advertising buyer would be bought by Havas.

Having been buoyed last week by bid speculation, Tomkins faded 0.7 per cent to 210p as brokers including Numis argued that the valuation was looking stretched.


Small cap

Broker backing lifts Dragon

Dragon Oil moved 3.7 per cent higher to 430p after Merrill Lynch resumed coverage after the recent failed bid for the exploration company focused on Turkmenistan, write Neil Hume and Bryce Elder.

Advising clients to buy and setting a 580p target price, the broker said that Dragon was still an attractive takeover target. It said majority shareholder the Emirates National Oil Company could bid again, or given the troubles in Dubai, sell its 52 per cent holding.

Thanks to the strategic importance of its assets, Dragon is a natural target for national, international and Russian oil companies, Merrill said, adding the bidding could go as high as 900p a share.

Innovation Group, whose software outsources insurance claims, was heavily traded with 150m shares changing hands. Traders said M&G had sold 58m shares, or 6.2 per cent of the company, via Investec Securities, which then placed the shares with institutions.

Innovation, which rejected a 16p a share offer in October, rose 6.5 per cent to 12p as the overhang was cleared.

Vatukoula Gold Mines rose 16.7 per cent to 1.78p in the wake of comments from Martin Hughes, the head of Toscafund. In an interview with Reuters on Friday, Mr Hughes said Vatukoula was cheap and said it could rise 10-fold over the next 12 months. In addition there were rumours of a resource update from Vatukoula operation in Fiji.

Titanium Resources added 27.5 per cent to 11p after an overhang was cleared, while Eastern Platinum gained 11 per cent to 79p as the platinum price rose to $1,586 an ounce and amid talk of further consolidation. Last week, ENRC was rumoured to be weighing a bid for Mvelaphanda Resources, whose main asset is Northam Platinum.

Pinewood Shepperton rose 1 per cent to 150p after Crystal Amber, the investment fund run by former Schroders analyst Richard Bernstein, declared a raised holding of 15.1 per cent.

Morning all. Market reports:

The Times
The Times (Need to know)
FT
The Guardian
The Independent
This is Money

American banks that have received a taxpayer bailout may face a new levy as President Obama tightens the political screws on financial institutions.
New levy threat for American banks

Retailers HAVE shrugged off the downturn to record their best Christmas trading figures since December 2001, but store owners are warning that the buoyant sales may offer only temporary relief on the "painful road to recovery".
Festive sales 'stronger than retailers dared hope for'

NIKKEI 225	AUSTRALIA ASX200	HANG SENG	SHANGHAI COMPOSITE

KOSPI	SENSEX
NYMEX CRUDE	GOLD	VIX

BDEV RBS: upgraded to buy from hold
BKG Credit Suisse: tp raised to 920 from 903
BKG RBS: upgraded to buy from sell
BRBY Citigroup: reiterated neutral, tp raised to 600 from 480
BVS Credit Suisse: tp raised to 774 from 750
BWY Credit Suisse: tp raised to 1256 from 1200
BWY RBS: downgraded to hold from buy
MGCR Goldman: upgraded to buy from neutral
MRW Citigroup: tp reiterated 265
PSN Credit Suisse: tp raised to 642 from 606
PSN RBS: upgraded to buy from hold
RDW RBS: upgraded to hold from sell
SIA Morgan Stanley: upgraded to overweight from neutral, tp 1800