FTSE Declines; Inflation, Write Down Worries

123jump.com Staff
26 Jun, 2008
New York City

UK stocks declined after the BOE Governor King projected higher inflation for the rest of the year. Rising fuel and food prices are stoking higher inflation expectations. UK and European markets fell between 1.5% and 2.5% after analysts revised estimate of asset write downs at the U.S. banks higher. Barclays and Royal Bank of Scotland dropped more than 3% and HSBC declined 2%.

[R]2:00PM New York, 7:00PM London – Higher inflation forecast in the UK and higher estimate of write down at the U.S. banks drag UK stocks lower.[/R]

London stock indexes fell sharply on continued negative projections on the economy by the Bank of England Governor Mervyn King and investor downgrades on media companies.

Market sentiment

In London trading FTSE 100 fell 2.61% or 147.9 at 5,518.20.
The CAC 40 retreated 1.81% to 4,454.33. In Germany the DAX 30-index fell 123.92 points or 1.87% to 6,493.86. Shares in Switzerland fell as the Swiss Market index dropped 113.70 points or 1.61% to 6,967.67.

Of the 102 FTSE 100 stocks 4 gained, 97 declined, and 1 was unchanged. Lonmin Plc led advancers in the index shares with a rise of 3% followed by Cairn Energy gaining 1.55%.

LSE and Lehman Brothers to create pan-European trading

London Stock Exchange together with Lehman Brothers will create a pan-European multilateral trading facility (MTF) to be called Baikal for the execution of non-display orders.

Baikal will combine “dark liquidity pool with sophisticated algorithmic trading functionality” and allow buy-side and sell-side participants to trade larger orders in a trusted environment.

In addition, the multilateral trading facility will open equal access to securities across the 14 European countries with smart order routing in at least 22 trading venues, while real-time post trade reporting will be included in the London Stock Exchange’s Infolect feed.

Lehman Brothers will provide expertise in algorithmic trading strategies.

Chief Executive of the London Stock Exchange Clara Furse said, “We are delighted to be partnering with Lehman Brothers to create Baikal, which will draw upon their market leading expertise in algorithmic trading strategies and investment in new anti-gaming technology. In addition, we actively welcome the participation of other members of the sell-side as well as buy-side community in making Baikal a success in bringing down the cost of investment in European equities.”

UK inflation likely to rise to 4% this year

The Bank of England Governor Mervyn King said in a speech before the Treasury Committee today that inflation is likely to rise to 4% before the end of the year on rising prices of oil and the depreciation of the sterling, which has made exports expensive.

King also hinted that inflation will not push the overall level of prices unless prices and wages rise at a faster rate.

“We believe that a slowdown in the economy is needed this year to ensure inflation returns to the target.

“Business surveys indicate that the economy is slowing. And the squeeze on real incomes resulting from higher food, energy and import prices means that growth is likely to remain weak this year,” said King in part of his speech.

Gainers & Losers

Lonmin Plc led advancers in the FTSE 100 stocks with a gain of 3% followed by rises in Cairn Energy of 1.55%, in Anglo America of 0.55% and Royal Dutch Shell-A of 0.05%.

Commodity stocks rose oil prices steadied as the Fed kept interest rates on hold.

London Stock Exchange led decliners in the FTSE 100 stocks with a drop of 12.97% followed by losses in Invensys Plc of 9.33%, in Barclays Plc of 8.22%, British Airways of 7.75%, and ITV of 7.44%.

ITV dropped after Morgan Stanley reduced Thomson Reuters Corp price estimate by 9.9% to 1,280 pence. JP Morgan Chase & Co. recommended investors sell holdings in British Sky Broadcasting Group Plc. Thomson declined 5.56% as result.

Hammerson slumped 5.5% and British Land Co plunged 5.40%.

Asian Markets Review

In Tokyo Nikkei 225 Index closed lower 7.60 or 0.05% to 13,822.32, in Hong Kong Hang Seng index decreased 179.49 or 0.79% closed to 22,455.67. In Australia ASX 200 index higher 69.20 or 1.32% to close 5,307.00. In Malaysia KL Composite index decreased 5.22 or 0.43% closed to 1,203.89.

In South Korea Kospi Index decreased 0.13 or 0.01% to close at 1,717.66, in Thailand SET index closed lower 4.03 or 0.52% to 774.39 and Indonesia JSE Index edged increased 9.53 or 0.41% to 2,350.89. Sensex index in India increased 201.75 or 1.42% to 14,421.82.