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The Sunshine of Hope
By
Investment Editor
Adrian Ash
Nov 02, 2005
*** Sunshine and hope...apes and monkeys...
*** Gold up...oil down...a takeover rumour from China...
*** Inflation...cheap flights...junk bonds...time tocash out...and more...
-------------------
- 'On 5 May you can let the sunshine of hope break through the clouds of disappointment we all feel,' said Michael Howard yesterday, doing his best to ape that other monkey who'd like your vote next month.
- Over in the real democracy of stocks and shares, meantime, investors demanded a recount of last week's vote-of-confidence - even as oil prices slid once more.
- The FTSE100 slipped 10 points to 4,973 on poor turn-out. Just over 2.07 billion shares changing hands in 166,000 deals...a shift in mood from last month worthy of Peter Snow jumping up and down excitedly in front of some ludicrous 'swing-o-meter' graphic.
- The number of daily trades at the LSE in March averaged more than 320,000 last month, the exchange said on Monday, a record high for the third month running that jumped 19% from March last year. Even so, shares in Europe's largest stock exchange slipped a penny to £4.60. They've now dropped more than 20% since Deutsche Boerse scrapped its £1.3 billion take-over bid last month.
- So far, the LSE's only remaining suitor, Euronext, has failed to make its intentions clear. And while the LSE said its electronic trading platform, SETS, saw the average number of trades rise 31% from a year before, the total value of those daily trades fell to £20.9bn in March, down from £21.1bn the month before.
- The reason for higher volume but static value? SETS is the platform for trading blue chip stocks...and they just don't grab investors' attention like they did. Volatile, risky and rarely paying a dividend much over bank-rate, the UK's leading shares have risen 40% en masse since March 2003, when the FTSE100 hit bottom in the bear market so far. But the FTSE Small-Cap index, like its mid-cap 250 cousin, has gained some 80% over that time.
- In the commodity markets, gold rose $4 an ounce yesterday to $429...while Brent crude oil ended 61 cents lower at $52.71 per barrel. That's 9% down from last week's all-time highs, helping push the Oil & Gas sector 0.7% lower overall, while UK Mining stocks dropped 0.9%.
- On the big board, Royal Bank of Scotland shares got whacked down 1.7% thanks to a takeover rumour started by the South China Morning Post. It said the UK's second-biggest bank wants to buy up 15-20% of the Bank of China.
- 'Such a deal would be received poorly and contradict existing group strategy,' said a note from Dresdner, giving investors an early 'heads up' on how the City views any takeover bid these days: buy the target, sell the predator. RBS ended the day at £16.70.
- ICI also fell, down 1.9% to £2.72...while BAE Systems dropped 1.8% to £2.70. Fellow metal-heavy gas-guzzlers British Airways also fell, losing 0.5% to £2.72 despite a bullish report from the UK airport operator, BAA -------------------
- With seven airports including Heathrow, Gatwick and Stansted, BAA carried 11.6 million passengers last month, it said, some 7.7% more than in March 2004. For the financial year ending March 31st, BAA's UK airports saw passenger numbers rise 6.3%. Low-cost travellers were up 21%.
- In fact, last year's record run in oil prices failed to prevent global air flight numbers reaching pre-9/11 levels, according to data from a UK consultancy. This month, OAG reckons, some 2.27 million flights will operate worldwide - 45,000 more than in April 2001, the travel data company OAG says. Over 10% of the flights made this month worldwide will be operated by budget carriers, some 300,000 in all.
- 'The low-cost phenomenon continues to break all records,' said Duncan Alexander, managing director of OAG. But BAA still failed to rise on the day, standing still at £5.94 while Easyjet shares slipped to £2.33, and Ryanair's stock in Dublin dropped 0.6% to €6.16.
- The pullback in oil prices also fails to make the economic headlines today, thanks to a report from the Office for National Statistics saying raw material costs rose 11.4% in the year to March, the fastest rate on record. Crude prices rose 15% for the month, says the ONS, and stood 51.2% higher from a year earlier!
- But output prices - the price of finished goods leaving the nation's factory gates - rose just 2.8% for the year-to-March. 'Manufacturers are clearly continuing to struggle to pass on their increased costs,' said Howard Archer, economist at Global Insight.
- 'We're all looking ahead to the impact of these high commodity and oil prices combined with, certainly in the UK market, sagging demand,' said another analyst at Brewin Dolphin. 'It's difficult to get excited about sticking more cash into the market. If anything, I think appetites for risk are falling so it's probably time to take some money off the table.'
- But taking money off the table has never been the City's strong suit. Indeed, if risk is growing, the usual course is to pile in - harder than ever!
- 'Junk-bond issuance hit a record $140.8 billion last year,' writes Sean Corrigan in a note to your locum correspondent this morning, 'just pipping the previous peak set, very inauspiciously, in the run-up to the Russian default of August 1998.'
- 'We doubt whether anybody at the Fed - or at any other central bank - actually understands this stuff,' warns our friend at Sage Capital in Zurich. 'For example, the Central Bank of Luxembourg's latest report sees 'a newly resilient international banking system' which has 'acquired near immunity to crisis situations.''
- But never mind the risks - what will the financial markets deliver today, do you think...the sunshine of hope...or the clouds of disappointment?
Until next time...
Adrian Asfor MoneyWee
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