Inflation, Home Price Declines Drag UK Stocks

123jump.com Staff
20 May, 2008
New York City

Crude oil in London traded at t record high, sparking fears of rising inflation in the region. Crude oil prices have risen nearly 30% in the last three months when valued in the U.S. dollar and nearly 18% in euro. The prediction of higher crude oil prices put investors on the defensive. Commodities related stocks fell after a broker encouraged investors to trade out of the sector for now. BHP Billiton, Rio Tinto and Antofagasta fell on profit taking.

[R]1:00AM New York, 5:00PM London - Northern Rock warns dropping house prices could affect recovery plan. Rising crude oil prices sparked fears of inflation.[/R]

London stock averages fell on profit taking, especially of commodity stocks as fears of inflation drove markets in Europe and Asia lower. The rise in wholesale inflation in the U.S also put investors on the defensive.

Market sentiment

In London trading FTSE 100 plunged 2.9% or 184.9 at 6,191.60.

Of the 102 FTSE 100 stocks 3 gained and 99 declined. BHP Billiton Plc led decliners in the index shares with a fall of 7.9% after Morgan Stanley urged investors to take profits.

Crude oil prices advance towards $130 per barrel

Crude oil futures prices gained $2.38 to $129.31 a barrel in volatile trading on continued disturbances in Nigeria and a strike by French workers at oil port Fos-Lavera. Crude oil has jumped more than 30% in the last three months of trading and oil investor T. Boone Pickens from Texas suggested that oil could trade above $150 a barrel. Credit Suisse raised its average price estimate for crude oil to $120 a barrel.

French bank Societe Generale said in a research note, “Crude prices are being driven upward by a powerful combination of ongoing financial investor flows and strong fundamentals, both short-term and long-term.”

ICE July Brent also climbed $2.40 to $127.49 a barrel.

Northern Rock cautious of house price declines

Bloomberg news reported that Chairman Ron Sandler told Parliament’s Treasury Committee during a hearing today in that 5% decline in home prices will gravely prejudice the company’s recovery plan.

The post-nationalization plan obliges the lender to repay £24 billion it borrowed from the Bank of England last year to diffuse losses that were induced by a run on deposits by customers on fears the bank was illiquid.

Separately, Northern Rock’s Chief Financial Officer Ann Godbehere said £2.8 billion has been repaid and 75% of the obligation will be settled by the end of 2009.

Recently Housing Minister Caroline Flint told Cabinet that house prices are expected to decline between 5% and 10% this year.

Gainers & Losers

British Land Co. led advancers in the FTSE 100 index shares with a rise of 1.08% followed by increases in Alliance & Leicester of 0.99%, and HBOS Plc of 0.59%.

BHP Billion led decliners in the FTSE 100 index shares with a fall of 7.88% followed by losses in Kazakhmys Plc of 7.77%, in Eurasian Natural of 7.23%, in Rio Tinto Plc of 6.85%, and British Airways Plc of 6.73%.

BHP Billiton rose despite the rise in oil prices after brokerage Morgan Stanley advised investors to sell commodity stocks. Antofagasta Plc fell 4.50%, Anglo America dropped 6.17%, Xstrata plummeted 5.95%, and Vedanta slipped 5.14%.

Marks & Spencer cuts staff and bonuses

Retailer Marks and Spencer reported today that net income in the six months ended March 31 rose 13% to £428 million, but rose 25% in the year. However, the company missed its earnings targets and said it plans to reduce management bonuses.

World markets update

In Tokyo Nikkei 225 Index closed lower 109.52 or 0.77% to 14,160.09, in Hong Kong Hang Seng index decreased 572.77 or 2.23% closed to 25,169.46. In Australia ASX 200 index lower 41.30 or 0.69% to close 5,908.10. In Malaysia KL Composite index decreased 13.24 or 1.02% closed to 1,287.43.

In South Korea Kospi Index decreased 12.22 or 0.65% to close at 1,873.15, in Thailand SET index closed higher 3.49 or 0.40% to 873.82. Sensex index in India decreased 204.76 or 1.17% to 17,230.18. Market of Indonesia was closed today.

In London FTSE 100 Index closed lower 184.90 or 2.90% to 6,191.60, in Paris CAC 40 Index decreased 87.22 or 1.70% to close at 5,054.88 and in Frankfurt DAX index lower 107.44 or 1.49% to close at 7,118.50. In Zurich trading SMI decreased 152.35 or 1.96% to close at 7,626.58.