Feeling The Pain

By Heather D'Alton Dec 07, 2005

*** Woolies dumps its struggling stores

*** Ban on tobacco groups won’t affect their returns

*** Pain for higher-skilled workers...can a flat tax take off in the UK?...Chinese balancing act...and mor      --------------------- – Retailer Woolworths has finally rid itself of its struggling entertainment stores, MVC, selling the unit to a consortium led by financial adviser Argyll Partners.

– Woolies has been trying to dump its music and DVD business since March – after Apax Partners allegedly walked away from its £837m bid for Woolies, put off by the poorly-performing entertainment stores. Argyll will buy the loss-making business for £5.5m – creating a one-off loss of some £35m for Woolies. The deal with Argyll should be completed by the end of the year, Woolies said – which should boost the group’s share price from its current two-year lows. Shares traded 1% down on Friday.

– The blue chip index meanwhile traded at 40-month highs before the weekend – up 12 points to 5,282. The FTSE 250 also traded 0.4% in the black, at 7,605 – a new all-time high for the index, while the All Share index gained 0.3%, to close at 2,644.

– Tobacco giant BAT closed as the top blue chip gainer on Friday, with its share price trading 4% up. This is despite the introduction of a new ban on advertising by tobacco firms using branded goods – which comes into effect today. At the same time, the EU’s ban on fag- makers advertising in the print media, on the radio or over the internet also starts today, with tobacco groups no longer allowed to sponsor sporting events.

– So is this a problem for the tobacco industry – with the sector currently trading near all-time highs?  Not likely. While fag-makers such as BAT and Imperial Tobacco are struggling to boost cigarette volume growth amongst the Western countries, they are instead turning to the untapped markets of China, the Middle East and Africa. Gallaher for one has managed to infiltrate the Russian market – with much success, while the industry as a whole should continue to do well. Gallaher traded 2% up on Friday, while Imperial closed 1% in the red.

– Luxury car group Inchcape saw pre-tax profit jump to £104.8m in the six months to June 30 on sales of £2.26bn, from £86.2m on £2.16bn sales last time, the group said this morning. Strong sales growth in Singapore and Australia offset tougher markets in the UK and continental Europe. The interim dividend was lifted 27% to 19p a share. And investors expected as much from the group before the weekend, with its shares trading 4% up.

– And in Euroland, Wim Duisenberg, who oversaw the introduction of the euro in his role as the first president of the European Central Bank, has died aged 70. Politicians across the eurozone paid tribute to a man who frequently faced criticism for his blunt manner and hesitancy in cutting interest rates, but also managed to establish confidence in a central bank spanning 12 countries with differing economic priorities. 

      --------------------    Feeling the Pain- Every year we are once again warned of the looming dangers of inflation, says Martin Spring in his newsletter On Target. Yet nothing ever seems to happen. The reason is that while inflation comes about if the demand for goods and services is more than the supply, this demand has been dampened by a number of factors, not least the growing supply of goods from Eastern countries. The result? Well, the higher-skilled Western employees are starting to “feel the pain”.

The Practicalities of a Flat Tax for the UK- There are a lot of things to be said for a flat rate of income tax – it would be transparent, comparatively cheap to administer, and business-friendly, says Tim Lai at the Adam Smith Institute. But in the short term, there are plenty of political and practical obstacles which need to be addressed if it is to become anything more than a pipe dream.

China’s Rebalancing Tactic- With China taking the first step to revalue its yuan, the global impacts of the move cannot be underestimated, says Morgan Stanley economist Stephen Roach. For one, by moving away from its peg, China is clearly telling the US that its demand for dollar- denominated assets is likely to dwindle. What’s more, a number of other Asian central banks are also likely to rebalance their portfolios, and diversify out of dollars. This, in return, could prove quite vexing for America’s asset economy.

Published in Economics | More articles by Heather D'Alton

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