Home Prices Fall; Weak Economic Forecast

123jump.com Staff
18 Aug, 2008
New York City

Stocks in London fell sharply after house prices fell 4.8% in August and a report by the British Chambers of Commerce indicated that economic growth will fall to negative or zero in the next three quarters. Bradford & Bingley said 72% of its shareholders rejected offer to participate in rights offering and appointed new chief executive. Woolworths rejected bid from Iceland Foods that involved complex restructuring.

[R]1:00PM New York, 6:00PM London - U.K. house prices fall 4.8% in August. Woolworths rejects Iceland Foods bid. The 72% shareholders reject Bradford & Bingley rights offering.[/R]

London stock indexes fell sharply after house prices fell 4.8% in August and a report by the British Chambers of Commerce indicated that economy growth will fall to negative or zero in the next three quarters. Bradford & Bingley said 72% of its shareholders rejected offer to participate in rights offering and appointed new chief executive.

However commodity stocks pared losses after crude prices rebounded as tropical storm Fay threatened to disrupt oil and gas production from the Gulf of Mexico.

Market Sentiment

In London trading FTSE 100 fell 4.6 or 0.08% to 5,450.20.

Of the 102 FTSE 100 index stocks 34 rose, 67 declined, and 1 was unchanged. Friends Provident led advancers in the index shares with a rise of 4.50% followed by Tullow Oil increasing 3.69% after crude oil prices rebounded to above $114 per barrel on fears of supply disruptions.

U.K House Prices Fall 4.8% in August

Rightmove Plc reported today on its Web site that house prices fell 2.3% from a month earlier and 4.8% from a year ago at £229,816 in August.

Prices fell the most in London, where summer sellers reduced their asking prices by 5.3% after dropping 0.3% in July. New listings in the month under review fell 25% of what was forecasted at 106,000.

The report added that the average unsold stock of property per estate agency branch has increased to 78 from 77 last month despite the low supply of new construction indicating that the number of transactions that the Land Registry will eventually report for the rest of 2008 will continue to be at historical lows.

According to Rightmove, the number of transactions this year is likely to meet the lows reached in since 1959.

Miles Shipside, commercial director of Rightmove observes, “We appear to have very few sound remedies, and all have some undesirable consequences. The lack of mortgage finance is central to the problem, and perhaps that is where policymakers’ attention should be focused, as the banks can’t or won’t sort out the mess they were instrumental in creating. In the meantime, sellers need to continue to price to sell, present their homes to be the best on the street, and promote them better than the rest to really stand out.”

U.K Economic Growth to Weaken

The British Chambers of Commerce reported on its Web site today that GDP growth will be slightly negative or zero on the next two or three quarters, while the period of “weak, below-trend, growth is likely to be prolonged, lasting until the final months of 2009 or early in 2010”.

The body further believes that unemployment will likely increase to nearly 300,000 over the next few years to almost 2 million. British Chambers of Commerce contends that the U.K economy urgently needs a rate cut to counter the threat of recession.

BCC envisages that the UK Bank Rate would be cut to 4.75% in the fourth quarter of the year and an additional cut to 4.50 % in the first quarter of 2009.

Gainers & Losers

Friends Provident led advancers in the FTSE 100 index shares with a rise of 3.69% followed by rises in Tullow Oil of 3.69%, in Man Group of 2.57%, in Kazakhmys of 2.56%, and Old Mutual of 2.11%.

Tullow Oil and other commodities rose after oil prices rose to $114.30 a barrel as a tropical storm threatened gas and oil production from the Gulf of Mexico. Also copper traded at $7,410 a ton from $7,360 on Friday last week, while aluminum gained fractionally to $2,790 a ton from $2,780 on Friday last week.

Anglo America edged up 2.05%, Rio Tinto spiked 1.69% and Royal Dutch Shell-B increased to 1.19%.

BHP closed up 0.52% after it reported today in its preliminary result for the year ended June 30 net profit increased 14.7% to $15.4 billion from $13.4 billion as revenues gained by 25.8% to $59 billion from $47 billion a year earlier.

London Stock Exchange led decliners in the FTSE 100 index shares with a fall of 4.73% followed by losses in ITV Plc of 3.74%, in Enterprise Inns of 3.71%, in British Airways of 3.16%, and Invensys of 2.91%.

Retailers also fell. Next slumped 2.31%, Kingfisher slipped 1.46% and Sainsbury climbed down 1.67%.

Woolworths Rejects Iceland Foods Bid

Woolworths reported on its Web site yesterday that the company has rejected a proposal by Iceland Foods Ltd. to acquire its retail division because it involves a complex restructuring which it finds not practical. The company also claims it undervalued its assets and required the company to retain all the pension liabilities for current and former employees of the retail business, which was unacceptable to the Board.

Europe Markets Review

In London FTSE 100 Index closed lower 4.60 or 0.08% to 5,450.20, in Paris CAC 40 Index decreased 4.78 or 0.11% to close at 4,448.84 and in Frankfurt DAX index lower 13.14 or 0.20% to close at 6,432.88. In Zurich trading SMI decreased 4.53 or 0.06% to close at 7,231.40.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 146.04 or 1.12% to 13,165.45, Hang Seng index in Hong Kong decreased 229.91 or 1.09% closed to 20,930.67. ASX 200 index in Australia increased 3.30 or 0.07% to close 4,985.00. The KL Composite index in Malaysia decreased 10.69 or 0.98% closed to 1,084.36.

The Kospi Index in South Korea decreased 4.48 or 0.28% to close at 1,567.71, SET index in Thailand closed lower 10.25 or 1.45% to 697.23 The Sensex index in India decreased 78.52 or 0.53% closed to 14,645.66. Markets of Indonesia were closed today.