The inside word from the City: Markets

Swings and roundabouts

Thu, 27 Mar 2008 11:51:32 GMT

What a strange few days. The Financial Services Authority has been busy undergoing a period of self-flagellation, admitting a catalogue of errors over the Northern Rock fiasco – Cityblogger half expected the gentlemen in question to stand outside the Bank of England whipping themselves with chains, but perhaps his fevered imagination expects too much. And yet the FTSE100 has been relatively steady, miraculously holding onto its gains. This morning the index stood at a healthy 5722, up 62 points. Even the London Stock Exchange bravely told the markets today that’s optimistic in its outlook for the year!

True, yesterday was a fairly quiet day for equities and there was a fairly weak response from the markets to Mervyn King’s appearance before the Treasury Select Committee. But at least it's raised hopes of more interest rate cuts to come.

So what can we expect from the equity markets in the next few weeks? Tom Hougaard at City Index reckons we’re undergoing a period of consolidation in equities as investors wait to see what happens, and we’ll see further volatility going forward with a “buying surge” at the end of the week.

But Anthony Grech at IG Index takes a more bearish view. “There is still a sense out there that the sort of short, sharp rallies we have seen over the last couple of days are nothing more than a quick respite before the market turns lower again,” he points out. “There are still no immediate signs of a turnaround in the areas the market has worried about recently - be it inflation, banking or housing - so many traders are probably still all too keen to hit the sell button after a couple of days of good gains.”

What’s more, Mark Dampier at Hargreaves Lansdown is also cautious. “Nobody’s got a bloody clue [where the markets are going],” he told Cityblogger. “You get a hangover after a party and we’ve had a 10 year party [in the equity markets]. But we’ve got a full scale banking crisis and that’s not going to go away. Valuations in corporate bonds look good [right now] and in due course equities will too. But could the FTSE fall another 10 per cent? Absolutely.”

Mr Dampier warns that house prices will fall significantly due to the tighter lending criteria brought in by mortgage lenders, making it more difficult for house buyers to borrow more money and therefore forcing sellers to lower house prices if they want to sell.

Meanwhile, DIY specialist Kingfisher is still under the cosh, with trading deteriorating in the last two quarters, no profit at B&Q in the fourth quarter and is today slicing its dividend in half. Ouch. Cityblogger is heading to his nearest outlet in search of some bargains.

Where do you think the markets will finish up this year?

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The Easter effect

Tue, 25 Mar 2008 13:01:15 GMT

This time last week, in the depths of Bear Stearns despair, who would have thought the Easter holidays could inject such cheer into the equity markets? The FTSE100 is up nearly 4 per cent this lunchtime to 5694. Incredible! Cityblogger had to make himself a stiff cup of Earl Grey to ease the shock of it all, and ensure that it wasn’t just the fumes from his furniture cleaner playing with his cognitive function. In fact, city watchers are scratching their heads, wondering what exactly was in all those Easter eggs traders gorged themselves on over the festive break.

Revelations that JP Morgan is raising its bid for Bear Stearns five-fold to $10 a share or $1bn have certainly helped improve investors’ humour, as well as more encouraging US economic data. Housing sales in the US have picked up, suggesting the housing slump there may be nearing an end. Banking and building stocks have responded positively, and the markets are, for once, a reassuring sea of blue.

But while we are experiencing something of a relief rally, city veterans don’t believe we’re out of the woods yet and are cautious of some of the Sunday press articles this weekend suggesting now is an ideal time to buy shares. “While we welcome this rally and believe that it really is fully justified - particularly in the greater degree of US economic optimism - we are mindful that as far as the UK is concerned it's [really] a necessary pause,” explains Howard Wheeldon, senior strategist at BGC Partners. “We do believe, along with many others, that the worst is now past. But until banks have cleared the decks, until there is reasonable enough proof that the US housing market has turned and that the current US recession will be short-lived we cannot envisage sustainable upward momentum in the markets.”

Sobering thoughts!

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No picnic for Bear Stearns

Fri, 14 Mar 2008 15:40:36 GMT

If you go down to the woods today you certainly won’t find anyone employed by Bear Stearns, furry or otherwise, supping on lemonade or chowing down on fairy cakes.

Shares in the US bank have plunged by a shocking 50 per cent after the company effectively did a Northern Rock stateside. Bear has had to reach out to JP Morgan and the Federal Reserve Bank of New York for an emergency bail-out due to problems with liquidity.

Cityblogger suddenly has a strange feeling of déjà vu…

Rumours have been circulating this week that the bank could be in difficulties, but management previously denied there were any issues with liquidity. Investors are concerned about Bear’s possible exposure to Carlyle Capital, a hedge fund which collapsed this week and is part of private equity outfit Carlyle.

Unfortunately the London market is also suffering the subsequent hangover. The FTSE100 dipped by 1 per cent this afternoon following Wall Street’s lead to 5,644 after another miserable trading day yesterday.

“The market was right to be hugely suspicious of Carlyle,” said one commentator who asked not to be named. “And a 50 per cent drop in Bear’s share price is telling you something. They’re supposed to be moving into plush new offices in Canary Wharf – I wonder if that will happen now.”

Cityblogger hears there may be some more affordable premises going in Newcastle…

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Doggone

Tue, 11 Mar 2008 10:57:44 GMT

Cityblogger spent a surprisingly pleasant weekend in the company of 22,000 dogs. No, it wasn’t an international equities conference, but that celebration of everything canine known as Crufts (shssh…don’t tell Tiddles!). There the basset hounds and the Rhodesian ridgebacks roamed majestic, and all the latest in canine innovations were on show. Cityblogger and Great Aunt Vi were entertained by a collie dancing with his Finnish owner, dressed entirely in silver, to the theme music from ET – an experience tempered only by the sight of a rogue bloodhound indulging in a ‘personal adjustment’ metres from the green carpet, but Cityblogger digresses.

Yesterday the markets were equally doggone, but fortunately the FTSE100 is slightly healthier, up around 1 per cent to 5,705 this morning, thanks to Cadbury Schweppes, which is raising £1.9bn to split itself in two. The drinks business will be floated off on the New York stock exchange renamed Dr Pepper Snapple Group – bet they spent months thinking that one up – and the sweeties side will be listed here, as plain old vanilla Cadbury PLC.

But undoubtedly one of the biggest stories today is that of Eliot Spitzer, governor of New York and former scourge of Wall Street. Mr Spitzer famously campaigned to clean up potential conflicts of interest in the US banking sector, winning huge settlements and initiating the separation of the sales and research units in major US banks. He later went after the big drug companies. But the caped crusader has allegedly been caught with his Batman pants down, linked to a major investigation into high-class dames de la nuit. Cityblogger believes there are a few financial folk stateside who will be rubbing their hands together with glee.

Meanwhile all eyes will be on Alistair Darling’s eyebrows tomorrow…Cityblogger hopes for a happy Budget day to you all…fingers crossed!

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Dead cat bounce

Thu, 06 Mar 2008 10:24:23 GMT

As a lover of all things feline, Cityblogger abhors the liberal use nowadays of the City expression ‘dead cat bounce’. This, frankly, offensive phrase is often used to describe a short-lived rally in an equity market following a fall. But Cityblogger does his best to avoid using the expression in front of poor Tiddles, who – on the rare occasions he is awake - is a sensitive creature, instead adopting the more FC (feline correct) acronym ‘DCB’.

After the healthy rally by the FTSE 100 yesterday some City pundits had high hopes for today, but instead the index fell this morning by 39 points to 5814. To his credit, Tim Hughes at IG Index had feared another DCB. He points out that in the light of yesterday’s weak consumer confidence figures from Nationwide – which slipped to the lowest levels since the report’s launch in 2004 – “the outlook is still gloomy”.

Banking stocks, which have taken a battering in recent weeks, continue to be weak ahead of the Bank of England’s Monetary Policy Committee meeting today. City investors widely expect the MPC to leave interest rates on hold at 5.25 per cent, due to the Old Lady of Threadneedle Street’s concerns about keeping inflation under her thumb. In fact, David Buik at Cantor Index bluntly reckons “hell has a better chance of freezing over” than the MPC bringing in another interest rate cut before April, and he also thinks the likelihood of inflation reaching 3 per cent is “very much on the cards”. But other commentators more optimistically expect another cut either in April or May this year.

British Airways shares were the biggest faller this morning, nose-diving by 3 per cent in the morning’s trade after, alongside its investor day and release of February traffic figures, the company warned of turbulence ahead in the airline sector. Chief financial officer Keith Williams says the outlook for the next year is “consistent with the economic slowdown”, with the airline also having to absorb a hike in fuel costs of £450m to £2.5bn as the price of oil touches $100 a barrel. Ouch! The shares dipped even though Mr Williams pointed out that these extra costs are already in City analysts’ forecasts. It’s fair to say that the past 12 months haven’t been kind to British Airways, with shares down 48 per cent to 255.5p during the period. On the bright side, long-haul premium traffic continues to be strong, although short-haul premium and long-haul non-premium are weak.

Meanwhile City results season is in full swing, keeping financial directors awake at night, financial journalists furiously scribbling and Public Relations professionals in Prada handbags…Joy!

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FTSE falters

Mon, 03 Mar 2008 10:39:44 GMT

As Cityblogger keenly surveys the outside world from his office window, daffodils may be cheerfully nodding their heads in the spring sunshine and the heavens may be flecked with blue. But take a look at the equity markets and it may as well be raining cats and dogs. The FTSE 100 has already dropped like a stone this morning – down nearly 86 points to 5798.6 by 9.30, which is hardly the best start to the new month.

Big falls in the US and Asian stock markets overnight haven’t helped, with the indices catching a cold following a raft of grim economic data from the US out on Friday and a subsequently wobbly dollar. The Nikkei was down more than 4 per cent this morning. Among UK equities, banking stocks have again been the weakest link so far today, despite strong results from HSBC, on continued concerns about the fall-out of the credit crunch and sub-prime. Investment bank UBS fears that the sub-prime lending debacle could lose the banking sector $600bn altogether. Ouch!

But amid the gloom, Tom Hougaard at City Index, has a spring in his step. “I’m feeling quite bullish today,” he told Cityblogger. “I think Barclays etc. have been hammered considerably, but stocks like this are range-bound and we’ve just headed into a new month so I’m quite hopeful. The month after a big sell-off – like the one we had in January – we usually do nothing. And the markets finished pretty much where they’d started in February. But we’ve had a month to digest the big losses and many people are thinking of coming back [into the markets]. I think people are seeing this as a buying opportunity.”

Let’s hope a little of Mr Hougaard’s optimism is catching. Frankly it’s a more cheerful prospect than FT reports today that we could be in for as many as 50,000 City job cuts this year!

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FTSE jack-in-the-box

Fri, 22 Feb 2008 10:04:08 GMT

Perhaps Cityblogger was a little quick off the mark revelling in the FTSE100’s apparent upward spiral! True, the index pushed back through the 6,000 mark, but like a jack-in-the box, it lost ground yesterday afternoon and opened down 44 points this morning at 5,891, despite upbeat figures from Lloyds TSB. Again, this is partly down to yet more gloomy economic data from our American cousins, as well as downgrades to the retailers from broker Landsbanki.

Ho hum! And a good weekend to you all.

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The Red Sea parts

Thu, 21 Feb 2008 11:12:35 GMT

Yesterday was a fairly cheerless day in the markets, with equities largely reminiscent of Cityblogger’s childhood Sunday school tales of Moses and the Red Sea. Some of the blame lay squarely at the feet of Alliance & Leicester, whose grim results sparked a market sell-off, with shares in the bank down 8 per cent, while the release of minutes from the Bank of England’s monetary policy committee meeting and gloomy inflation data from the US in the afternoon didn’t help matters either.

So Cityblogger’s heart is warmed this morning to see the Red Sea parting, with FTSE100 a much healthier prospect, pushing back up towards the psychologically key 6,000 level to stand at 5,946 this morning. Asian indices were strong overnight thanks murmurings of further rate cuts from the US Federal Reserve. So that, in addition to a few bits and pieces of positive corporate news this morning, is helping support the FTSE. Kingfisher, owner of DIY shrine B&Q, posted fourth quarter results that, for once, weren’t quite as bad as analysts had expected. And figures this morning from Reed and Centrica were also good, with Centrica posting a 40 per cent jump in profits. Uswitch were quick to put the knife in, however, countering that British Gas is making fat profits off the back of price hikes which Uswitch claims have pushed "192,000 more households into fuel poverty".

And poor old Alliance & Leicester shares continue to suffer, down another 4 per cent today. Meanwhile, the market is eagerly awaiting results from Shire, the UK’s third biggest drugs company, which are due out at midday and are expected to be strong.

But, that said, Cityblogger won’t be sending out the party invites just yet. On the gloomy side, some bearish market analysts are sceptical that the index will succeed in moving much beyond the 6,000 mark. Tim Hughes, head of sales trading at IG Index reckons “the economic outlook remains uncertain at best” and that bullish investors betting on the FTSE100are “throwing in the towel” around the 6000plus level. Mr Hughes points out that many still “think that the risk in the short term is for further weakness”.

Partypoopers!

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