Wearing Your Jump Suit

By Heather D'Alton Dec 07, 2005

*** GUS beats the current consumer trend

*** Forced to wear jump suits: Aer Lingus’s punishment

*** The Fed should ease up on the rate hikes...the ailing manufacturing sector...India’s stockmarket boom...and more..      --------------------- – Retailer GUS may just be reconsidering its earlier claims to spin-off its credit-checking unit Experian. – While GUS reported better-than-expected sales for its Homebase and Argos stores, it was its credit business that enjoyed the best results: Experian’s underlying first quarter sales hiked by some 26%. As a result, the business now makes up more than half of GUS’s market value, at £4.5bn.

– GUS had hinted that it may spin-off Experian, but made no further mention of it yesterday. Cheery investors pushed the retailer’s share price up 5%, to close as the biggest blue chip climber on Wednesday.

– The retailer’s surge helped boost the FTSE 100 yesterday: the index traded 13 points in the black, at 5,215, while the FTSE 250 added 0.3% to close at 7,434.

– And miner Rio Tinto’s share price shot up 4%, as the group reported record quarterly iron ore production. The sector as a whole also traded in the black, as commodities-guzzler China said that its economy grew more quickly than anticipated in the first six months of the year. The Chinese reported growth of 9.5% from a year earlier, taking no heed of the government’s attempts to slow the economy for fears of overheating.

– Back in London, Shell was the biggest drag on the market as the group sported its ‘A’ and ‘B’ shares for the first time following its restructuring. Both stocks fell as tracker fund buying eased up. The funds had been buying to bring their portfolios in line with the stock’s new increased weighting on the FTSE. ‘A’ shares slipped 3% while ‘B’ shares closed 2% in the red.

– In Ireland, airliner Aer Lingus – already struggling from the cut-throat no-frills competition – has been accused of trying to speed up job cuts by driving employees to the point that they beg for voluntary redundancies. Their alleged ideas? To force cabin crew to wear jump suits and t-shirts as opposed to their current uniforms, and insisting pilots attend long and tedious training seminars. The state-owned carrier says it was merely a “discussion document”, but unions are unimpressed by the Aer Lingus tactics, and are seeking “clarification”.

– And in France, Danone, Europe’s best-performing food group, saw its share price surge some 12% yesterday. But there seems to be conflicting stories coming from the French government: while a junior French finance minister said that the government would not stand in the way of a potential bid for Danone, French Prime Minister Dominique de Villepin disagreed, saying they would not support any bid. But even with the government out of the way, a number of other obstacles remain...not least that not many companies could actually afford the group.

   --------------------    One more rate hike, and then a rest– The Fed will raise rates again at its next meeting in August. But after that it should signal its intention to pause, say John Mauldin, president of Millennium Wave Advisors. Why? Because the first principles of an interest rate policy is to “do no harm”. But continuing the hike will lead to an inverted yield curve...which historically indicates a recession. And that could lead to deflationary scares as well...

A Two-Speed Story– While the manufacturing sector in the UK is pretty much in a state of “structural decline”, the services sector currently driving the UK’s GDP growth, says Morgan Stanley economist Vladimir Pillonca on the Global Economic Forum. But will this trend persist? The problem with the manufacturing sector is that its current weakness is not cyclical – it’s very much structural...with further falls to be expected.

India’s boom returns...but beware– India’s stockmarket may have slumped earlier this year, but the benchmark Sensex 30 index has now broken through the 7,000-mark for the first time ever, we note in the latest MoneyWeek. And part of the country’s economic and stockmarket strength can be attributed to the outsourcing phenomenon, all of which has created a vibrant middle-class. So should you invest in the region? India is looking good, but there is one reason to be cautious...

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