The Surge of the Barbarous Relic

By Heather D'Alton Dec 14, 2005

*** All-time highs for the mid-cap index

*** Yet the manufacturers look rather glum

*** Is CNOOC up for Unocal?...so many bills to pay for us Brits...insurance 'ripe for consolidation'...and more        -------------------   – So the blue chip index closed above 5,100 for the first time since May 2002. But did anyone notice the FTSE 250 – which closed up at an all-time high on Thursday...

– The FTSE 100 traded 15 points in the black at 5,114 – and has now climbed 42 points over a 3-day winning streak. The FTSE 250 gained 0.5%, to close at 7,381. The All Share index also closed at a three-year high, at 2,561.

– 'Markets fluctuate between fear and greed,' Deutsche Bank's Akber Khan said yesterday. 'We're definitely not in fear mode and we're definitely not in extreme greed mode. It's a measured greed at the moment.'

– BT closed as the top blue chip gainer, after the regulator Ofcom dropped its threat to snitch on the group to the Competition Commission, which could have led to a break-up of the firm. But Ofcom's silence came at a price for BT: the telecoms outfit had to promise to open its network fully to rivals, while cutting wholesale prices, thereby allowing equal access for rivals. BT's shares traded 4% up, to a level not seen in three years.

– And directories group Yell took heart from Ofcom's good mood. The firm itself is struggling with regulatory issues, and is currently part of an ongoing competition probe. But with regulatory flexibility on the cards for Yell, its share price rose 3.5% to close at 442p – also a top blue chip riser.

– Rolls-Royce closed at the other end of the scale – down 2% – as profit-takers made the most of the aero- engine makers recent rally. The group's share price has gained some 20% since the start of May, and closed at 288p on Thursday.

– Yet while the markets enjoyed the City's buoyant mood, manufacturers are looking pretty darn glum at the moment. According to the Confederation of British Industry yesterday, factory order books for June slumped at their fastest rate for nearly 2 years, while manufacturers were at their most depressed for six months.

– 'Demand is subdued across the manufacturing sector with all the main industry groups reporting that order books are below normal,' CBI's Nick Brayshaw said yesterday. 

– And across the pond, China National Offshore Oil Corporation (CNOOC) is defending its bid for American rival Unocal – despite picking up much criticism for its offer. CNOOC bid $19.6bn for Chevron, a hefty $1.5bn more than Chevron...even though Chevron remains the clear favourite. So why are the US politicians and Unocal shareholders alike very wary of the Chinese bid? 

-------------------    – Could the gold price break-out above 350 euro an ounce be the most important event in the gold bull cycle to date? asks MoneyWeek's Tim Price. Even if you're not a supporter of gold, and regard it as a 'barbarous relic', then you should at least still be respectful of the price. It's now risen against three of the world's major currencies – even reaching a 14- year high against the yen. So what does that mean for investors? Well, there are a number of under-valued stocks yet to make the most of the price rise...

– Our household discretionary income – or our income after all our bills – has 'declined significantly', says Morgan Stanley economist Melanie Baker on The Global Economic Forum. And this could just explain why the retailers have been struggling of late. For one, growth in average household debt servicing has outpaced earnings. And then there's the rising cost of energy – relayed in our bills – which has a direct impact on spending. The result? Well, the retailers' woes may continue for some time to come.

– The struggling insurance sector is just 'ripe for consolidation', we note in the new issue of MoneyWeek. That's not too surprising: the industry has struggled under the weight of heavy claims and regulatory investigation. In the US for example, legendary investor Warren Buffett has found that his integrity is under-fire – as his company AIG admitted to an 'improperly documented' deal. But back in the UK, however, fund managers are itching for the industry's consolidation to get underway.

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