Contagion hits as traders sell supermarkets

A little over two hours into the trading day and the FTSE 100 is sitting dead on the flatline at 6621.

A wave of negative sentiment has engulfed the supermarkets this morning. Morrisons (-7%) was always expected to disappoint after pre-warning investors earlier in the year that profits would disappoint, but the market was not prepared for a miss of around 50%; the stock is now at its lowest since November 2008. This has caused contagion-selling in Sainsbury's (-6%) and Tesco (-2%), with the fall in the former explained by it being much closer to the size of Morrisons. 

This under-performance raises some interesting questions. Does another rout in Morrisons stock make it attractive to the same potential suitors that went cold when the buyout story was touted as recently as last month? Or does it just show the frailties of the company, as the discount retailers erode their customer base on much of their home turf? It is certainly a case of 'buyer beware' in this sector as a whole. 

Our Food and Drug Retailers sector is down nearly 4% today, 8% year-to-date against a FTSE 100 down only 2%. The big three UK listed supermarkets make up 85% of this, with Tesco the lion’s share of that. 

Worth noting today is the DAX: we have been watching a key trendline support around the big figure level of 9200, and it is currently holding slightly above there. 

A lack of chatter on the wires regarding Ukraine is certainly helping hold up the index, and in Europe as a whole the day is a mixed one. 

The US markets are being called to open modestly higher, and we anticipate the Dow Jones to open at 16,370, up 30. Look out for further weather-related analysis from US retail sales for February, at the daylight savings adjusted earlier time than normal of 12.30 (London time). 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.