Inflation Leads London Lower

Ivaylo
12 Dec, 2006
New York City

Expectations of a pause in interest rate hikes were broken today as inflation speeeded up to a ten-year high, having a profoundly negative effect even on the strongest stocks. Inflation jumped 0.3% last month, taking the annual rate to 2.7%, its highest since comparable records began a decade ago and missing estimates of 2.6%. The FTSE 100 index declined 16.5 points, or 0.3%, to 6,143.3.

[R]9:30AM London declines as inflation soars raising concerns of a rate hike.[/R]
The FTSE 100 index declined 16.5 points, or 0.3%, to 6,143.3.

Economic news

Inflation had hit its highest level for almost a decade after the biggest monthly rise on the CPI, index, up 2.7%, since its 1997 inception. The RPI rate, which includes mortgage payments, rose to 3.9 %.

Decliners

The news led mortgage lenders Bradford & Bingley, Alliance and Leicester and homebuilder Persimmon lower on concerns the Bank of England will raise rates early next year. Oil companies dropped as crude prices fell 1% overnight. Royal Dutch Shell was 1.2% weaker at and BP lost 0.9%.

Standard Chartered, the emerging markets-focused bank, fell 1.5% after a trading update received a flat reaction. Mortgage income was struck by increasing interest rates and fierce competition.

Drax Group, the electricity generator, fell after Merrill Lynch and Morgan Stanley both issued negative comment on the stock during the previous session. The shares lost a further 2.3%.

Among mid-caps, newspaper publisher Johnston Press shed 6.4% after it took a 15 million pounds impairment charge for asset write-downs and restructuring and stated it established no improvement in the advertising market.

Property stocks British Land, lower 0.82% and Slough Estates, down 0.34%, also featured amongst the decliners.

Bloomsbury Publishing was battered after it warned on profits. The publisher of the Harry Potter books plummeted 29% in response to news of disappointing Christmas sales and delays in payments from rights to reference books included in 2006 forecasts.

Advancers

Cadbury Schweppes advanced 2.2% after problems at its UK and Nigerian businesses were not enough for it to cut its expectaions. The company said it hoped for the same growth for the full year in the middle of its existing range.

Carpetright raised first half profits by 11.2%. Revenue growth and margin improvements more than countered increased costs. Carpetright advanced 2.12%.

[R]7:30AM Japan advances for second day in a row Tuesday, other markets fall.[/R]
Asian markets finished mixed. In Japan, the Nikkei 225 Index gained 0.7% to end at 16,637.78. Exporters Honda added 1.5% and Sony put up 2.1%. Toyota also advanced 1.12% while Canon shares moved 0.31% higher. Stocks in fishery and agriculture sectors also surged on a welcomed merger plan by two seafood makers in Japan. Maruha Group and Nichiro stated Monday they intend to merge their operations through a stock swap in October 2007. Maruha surged 6.4%, as Nichiro soared 14%.

The Hang Seng Index retreated 0.1% to 18,907.33. Among decliners were China Merchants slipping 4% and shoemaker Yue Yuen falling 2%. Airline Cathay Pacific shed 2% while China Resources gained 3.2%. HSBC inched higher 0.5% and Hang Seng Bank closed unchanged.

In Seoul, LG.Philips LCD and Samsung Electronics weighed the market lower. The Korea Composite Stock Price Index, or Kospi, shed 1% to 13,76.98. Liquid-crystal-display marker LG.Philips LCD finished down 4.3% on news of investigations of the LCD maker for fixing prices. Samsung Electronics also closed lower, declining 0.7%.

Around the region Australia S&P/ASX 200 gained 0.07% to end at 5,473.60, New Zealand NZSX-50 ended higher 1% at 3,298.11. Taipei Weighted index lost 2% to 7,458.56 while the Singapore Straits Times index advanced 0.23% to 2,893.81. The Shanghai Composite index added 1.8% to 2,218.95.

[R]6:30AM European markets moved slightly higher on Tuesday on retailers.[/R]
European markets were higher on Tuesday. By mid morning, the FTSE 100 in London was down 0.2% at 6,147.2, while Frankfurt Xetra Dax gained 0.1% to 6,477.19, and the CAC 40 in Paris was flat at 5,428.25.

Advancers

Metro, continued its upward movement as investors expect big sales at its two main consumer electronics stores before the government imposes higher sales tax next year. Metro shares gained 1.2%.

Ahold, the Dutch food retailer, advanced 2% after the former chief financial officer of its US Foodservice unit was given a three years probation for his role in the accounting fraud.

Tesco advanced 1.8% following its statement it was buying out the 50% it does not already own in Hymall, a China-based supermarket chain. Carrefour, also owning supermarkets in China, added 1.9%.

Remy Cointreau, up 4.61%, hit a ten years high after its statement that its first-half comparable champagne profit soared 49% on increased Piper-Heidsieck prices, volumes and improved product.

Umicore, based in Belgium, surged 5.9% on its agreement to combine its zinc smelting assets with Zinifex of Australia in a deal that would create the largest zinc maker in the world.

Decliners

Oil groups sank after crude declined more than 1% overnight on the NYME. Total, the French group, shed 0.9%, BP in Britain lost 1.3% and Austrian OMV was off 0.4%.

Deutsche Börse was 1% down after WestLB reduced its rating from add to hold. Philips Electronics moved down 0.6% after its LG.Philips LCD joint venture in South Korea lost almost 8% in the wake of investigations into price fixing.

Oil and gold

Crude oil gained on rumors that the OPEC, may agree to reduce output this week to stabilize prices. Crude oil for January delivery added 34 cents, or 0.6%, to $61.56 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude oil for January settlement was 19 cents higher to $62.03 a barrel on the ICE Futures exchange in London. Gold for immediate delivery gained $0.70, or 0.1%, to $631.15 an ounce.

Currencies

The euro bought $1.3237 in morning European trading, slightly lower than the $1.3251 it bought in New York late Monday. On Tuesday, the British pound moved upward to $1.9599 from $1.9587. The dollar slipped Tuesday against the Japanese yen, buying 116.82 yen, down from 116.88 yen on Monday.

[R]5:00AM Gold and silver prices gain Monday as dollar declines.[/R]
The most active February gold gained $3.80 to end at $634.80 a troy ounce at the New York Mercantile Exchange while March silver advanced 13 cents to close at $14.025 an ounce. January platinum also added to finish at $1,109.20 an ounce, $1.40 higher, although its sister metal, palladium, lost 20 cents to end at $333.75 an ounce. March copper gained 2.15 cents to end at $3.1335 per pound.

January crude oil declined 81 cents at $61.22 a barrel, as well as January heating oil losing 3.30 cents to finish at $1.7243 a gallon. January unleaded gasoline moved 2.25 cents lower to end at $1.5988 a gallon and January natural gas lost 13.4 cents to close at $7.427 a million British thermal units.

On the New York Board of Trade, the most-active March Arabica coffee futures gained 2.80 cents to settle at $1.2865 per pound, as well as March futures on raw sugar in foreign ports adding 0.05 cent to end at 11.42 cents a pound.