Surging Inflation Sends UK down

Ivaylo
17 Apr, 2007
New York City

Profit-taking pulled UK stocks down on Tuesday as a sharp increase in inflation raised the prospect of a May interest rate rise. Inflation had jumped undermining the government target of 2%. It also sent the value of sterling above $2 for the first time since the UK was forced to exit the European Exchange Rate Mechanism. The FTSE 100, which hit a six-and-a-half year high in the previous session, eased 45.7 points to 6,470.5 in a broad-based decline.

[R]9:30AM UK benchmark index trades lower Tuesday on inflation fears.[/R]
The UK benchmark was lower on Tuesday. By mid-day, The FTSE 100 eased 45.7 points to 6,470.5 in a broad-based decline.

Economic news

Consumer price inflation in March reached its highest level since comparable records began, forcing the sterling through the $2 barrier and resulting in Bank of England governor, having to write a letter of explanation to the chancellor concerning th government target of 2% inflation, which now seems an insourmountable task.

The sterling surged to $2.003 on the CPI date before pulling a back a little, but news of weaker than expected US inflation sent it back to $2.007 in early afternoon trading in London.

Advancers

Tesco was the biggest riser, up 1.4% to 462½p, after it reported record profits of more than £2.5bn and announcing plans to return around £3bn of its property divestment proceeds to shareholders. International Power is another gainer, up 1.7%, on talk of a bid from French conglomerate Suez. Drax is also higher, 1%, in sympathy.

Decliners

Hammerson, the property group, declined 3.9%, while Home Retail Group shed 2.5%. Experian Group dipped 2.7% as concerns over the outlook for the credit information group outweighed an increase in sales.

Mining stocks also suffered some profit taking, which reflected a weak session in Australia overnight. Vedanta Resources fell 2.2%. BHP Billiton also fell 0.7%.

Unlike Tesco, retailer Debenhams shed 12.1% after it announcing it expected profits for the year to be below current market expectations.

Broadband service provider Pipex, down 1.9%, is in the middle of a strategic review that could see it sold. The company more than doubled losses last year, but insisted nothing had been decided on its future and all options remain open.

[R]9:00AM Asian stocks end mostly lower with Japan down on profit-taking.[/R]
Asian markets ended mostly lower on Tuesday. In Tokyo, the Nikkei lost 0.6% to 17,527.45. Among decliners, camera and office-equipment maker Canon shed 0.3%. Japanese exporters advanced as shares of Advantest gained 1.4%, while Elpida Memory was up 1.2%. Mitsui OSK Lines added 2.4% after reports that the marine transport company is likely to post a 1% rise in pretax profit to $1.5 billion for the business year which ended March 31, marking the fourth year in a row of record profits.

Hong Kong Hang Seng Index bucked the downtrend and advanced 0.2% to 20,788.61. Among decliners, mainland insurer China Life Insurance shed 3.1%, while wireless carrier China Mobile dipped 1%, after rising 5.7% in the previous session. Gainers included HSBC Holdings which rose 0.4%.

South Korean Kospi index closed down 0.2% at 1,528.66, retreating from a record intraday high of 1,538.89, while Chinese Shanghai Composite Index finished up 0.4% to 3,611.87, after setting an all-time high of 3,622.89. Other markets around the region also declined with Australian S&P/ASX 200 falling 0.2% to close at 6,186.50. Taiwan Weighted Price Index dipped 1.1% to end at 7959.29 and Singapore Straits Times Index slipped 0.2% to 3,420.15.

[R]8:00AM NY-7:00PM Mumbai Sensex dips 89 points on a sell-off in IT stocks.[/R]
The Sensex on BSE finished 88.54 points, or 0.65%, lower at 13,607.04. The market-breadth was weak as there were almost three decliners for every two advancers.As 1,085 stocks advanced, 1,463 declined and 83 remained unchanged. Of the 30 stocks in the Sensex, 20 declined and the rest advanced. The turnover on BSE was Rs 4,547 crore, compared with Rs 4,144.83 crore. The turnover on NSE was Rs 9,611.56 crore, higher than Rs 8,950.85 crore on Monday.

Economic news

The rupee kept its upward trend and advanced further to 41.85/41.87 against the dollar following sustained portfolio inflows as the Reserve Bank of India abstained from intervention. The biggest dominant force on the rupee is the Reserve Bank and their activity in this market is going to determine how much the rupee appreciates from here on.

Global investment banking major Goldman Sachs on Tuesday said it would invest $1 billion over the next two years in the country for business expansion. The company is very bullish on India and wants to have all its businesses, including asset management, in the country over a period of time.

Earnings news

UTI Bank, private sector lender, has reported a net profit of Rs 211.89 crore for the quarter ended March 31, compared with Rs 151.73 crore in the year-ago period. Total income of the bank rose to Rs 1,667.87 crore for Q4 ended March 31, as compared to Rs 1,060.72 crore in the corresponding quarter in 2006.

Trading highlights

ICRA was the most-active stock with a turnover of Rs 926 crore followed by CESC and Reliance Industries.

Advancers

Bajaj Auto led the gainers, rallying 2.7% to Rs 2,548. The bike-maker soared from a low of Rs 2,460.20. Previously hammered cement large-caps staged a smart recovery on expectations of a strong performance from cement firms in the March 2007 quarter. ACC surged 2.5% to Rs 807, and Gujarat Ambuja gained 1.3% at Rs 114.

Index heavy Reliance Industries advanced over 1% to Rs 1,476. The stock had surged to an all-time high of Rs 1,487.80, in intra-day trade. Larsen & Toubro also advanced 0.6% to Rs 1,669. Larsen & Toubro will set up a boiler manufacturing facility along with Japan-based Mitsubishi Heavy Industries.

Decliners

The surge of the rupee against the dollar is a cause of concern for IT companies, as it directly impacts their revenue and profits. IT stocks plunged today. Satyam lost nearly 5% to Rs 456. TCS shed over 2% to Rs 1,250, and Infosys and Wipro slipped also over 2% each to Rs 2,082 and Rs 574, respectively.

Other decliners included Tata Motors dropping 2.6% to Rs 730, Cipla slipping 2.3% to Rs 230, Maruti declining 2% to Rs 762, and ITC losing 1.6% to Rs 156.

[R]6:30AM European stocks slipped Tuesday on concerns over likely rate increases.[/R]
European markets declined on Tuesday. By midday, Frankfurt Xetra Dax shed 0.5% to 7,305.5, the CAC 40 in Paris lost 0.6% to 5,825.2 and London FTSE 100 slid 0.7% to 6,469.6. National benchmarks fell in 15 of 17 western European markets that were open.

Advancers

French carmaker Peugeot advanced 3.4% after Morgan Stanley upgraded the company from equal weight to overweight. ABN was itself 1% higher after reports the Dutch Bank would likely extend its period of merger talks beyond the informal deadline on Wednesday.

Tesco rose 0.9%. The U.K. biggest retailer reported a gain in full-year profit to 1.89 billion pounds, or $3.8 billion after the company expanded stores and sold more organic food and clothing.

Remy Cointreau rose 1.1%. The second-largest liquor maker in France said fourth-quarter sales increased 2.2% as the company sold more Remy Martin cognac and Charles Heidsieck champagne.

Decliners

Telecom Italia fell 2.3% after AT&T, the largest US telecoms operator, pulled out of talks with Pirelli about buying part of its stake in TI’s holding company Olimpia. Shares in Pirelli were down 3.1%.

Danone fell 2.3% after the French food producer had its price target reduced by ABN Amro, due to its dispute with Chinese joint venture partner Wahaha.

Merck retreated 2.1% after UBS lowered its recommendation for the German drugmaker to neutral from buy.

Oil and precious metals

Crude oil climbed in New York on speculation demand for fuel is rising ahead of the summer driving season. Crude oil for May delivery rose 54 cents, or 0.9%, to $64.15 a barrel in after-hours electronic trading on the New York Mercantile Exchange and was at $64.07 in early trade in London. Brent crude oil for June settlement increased as much as 59 cents, or 0.9%, to $67.84 a barrel in electronic trading on the ICE Futures exchange.

Gold prices declined in London as some investors deemed excessive a rally that took the metal close to an 11-month high. Silver, platinum and palladium also dropped. Gold for immediate delivery in London fell $2.55, or 0.4%, to $687.65 an ounce. Silver for immediate delivery fell 5 cents, or 0.4%, to $14.00 an ounce. Platinum for immediate delivery fell $10.50, or 0.8%, to $1,268 an ounce, while palladium dropped $8, or 2.1%, to $371.50 an ounce.

Currencies

The British pound broke past $2 in European trading Tuesday morning for the first time since 1992 but the dollar gained some ground against the euro. The pound surged after official data showed consumer price inflation rose to 3.1% in the year ending in March, increasing the likelihood of another interest rate increase by the Bank of England next month. In early trade the pound had retreated to $1.9982, up from $1.9900 late Monday in New York. The euro traded at $1.3530, down from $1.3549. The dollar fetched 119.29 Japanese yen, down from 119.79.

[R]5:30AM Gold finishes higher Monday on dollar weakness, palladium declines.[/R]
June gold rose $4.60 to finish at $694.50 a troy ounce on the New York Mercantile Exchange. Silver declined with May silver shedding a penny to close at $14.08 an ounce after earlier trading $13.82 an ounce. July platinum gained $3.10 to $1,289.50 an ounce, while June palladium lost $2.05 to $379 an ounce. In trading of base metals, May copper advanced 0.75 cent to settle at $3.5395 per pound.

In Nymex energy trading, crude oil futures finished lower after reports that Nigerian production was on course to rise in the coming weeks. The May crude oil contract lost 2 cents to settle at $63.61 a barrel. May heating oil dipped 4.14 cents to settle at $1.8593 a gallon. Natural gas for May delivery ended 27.1 cents lower at $7.530 a million British thermal units Monday, slipping some 3.5% during floor trading.

Arabica coffee futures declined sharply. May coffee ended 3.35 cents lower at $1.0845 a pound, while July coffee was off 3.45 cents at $1.1120 a pound. May raw sugar closed 0.20 cent lower at 9.70 cents a pound, while July sugar finished 0.28 cent weaker at 9.59 cents a pound.