Thomas Cook, Carphone, Dragon Oil Fall

Darlington Musarurwa
05 Jun, 2009
New York City

Input prices declined 0.4% in May and construction fell sharply in the first quarter. UK stocks closed higher as Prime Minister Brown shuffled his cabinet to consolidate his power. Xenophobic lawmakers force Rio Tinto to abandon investment from China and strike a joint venture with BHP Billiton.

[R]7:00 PM London, 2:00 PM New York – Input prices declined 0.4% in May and construction fell sharply in the first quarter. UK stocks closed higher as Prime Minister Brown shuffled his cabinet to consolidate his power. Xenophobic lawmakers force Rio Tinto to abandon investment from China and strike a joint venture with BHP Billiton.[/R]

UK stocks closed higher after the Prime Minister Brown shuffled his cabinet and joint venture between Rio Tinto and BHP. Crude oil also scaled higher.

The Office of National Statistics reported a decline of 0.4% in input prices in May from April and 9.4% from a year ago.

Separately, the construction output fell 9% in the first quarter from the fourth quarter a year ago and fell 6% from a year ago. The sharp decline in the construction may indicate continued weakness in the economy.

In London FTSE 100 Index closed higher 51.62 or 1.18% to 4,438.56.

The Pound closed down 1.3% to $1.59, increased 0.2% against Euro to 1.441 and against Japanese yen increased 0.2% to 157.115 yen.

Rio Tinto Snubs Chinalco

London based Rio Tinto and Melbourne, Australia based BHP agreed to form equally owned joint venture for the iron ore assets located in Western Australia. The four month old saga ended after Rio canceled its investment deal with Aluminum Company of China.

Australian companies have long been vocal that economies in China, India and Indonesia are not open to them and have launched at times forceful attacks on governments of these nations.

But for the last three months, Australian lawmakers have shown largely xenophobic attitude to foreign investment when it comes to China. And the lack of government action after the recent attacks on Indian students is raising eyebrows around the world.

Australia preferred to protect its iron ore monopolies and not accept investment from China.

BHP will pay $5.8 billon to Rio Tinto and the merger is expected to save $10 billion combined for both companies.

Gainers & Losers

Air Partner declined 8% to 515 pence after it estimated current year earnings below market expectations.

Thomas Cook fell 4.8% to 214.50 pence and the leading decliner in the FTSE 100 index, after the parent company based in Germany Arcandor AG may be forced to sell its 52.8% stake in the company. Arcandor is expected to receive final decision from the German government to bailout the retail division of the company Karstadt.

Carphone Warehouse Group declined 0.6% to 171.50 pence after it reported annual profit of £133 million compared to profit of £4 million. Sales in the year declined to £1,385 million compared to £1,424 million.

BG Group gained 3.5% to 1,162 pence after the preliminary drilling in the oil field off the coast of Brazil found the evidence of oil at a depth of 5,000 meters of 15,000 feet.

Formjet surged 45% to 44 cents after the company suggested that revenues in the first four months of the year are 23.5% higher from a year ago period.

Dragon Oil Plc declined 6.8% to 375 pence after the largest stockholder in the company Emirates National Oil Company confirmed that the company held talks with the oil explorer in Turkmenistan. The ENOC also confirmed that the buyout premium will be at a “modest premium” to 338 pence, the closing price of Wednesday.

BHP Billiton and Rio Tinto surged in London trading after a joint venture between the two companies for iron ore mining in Western Australia.

FTSE 100 Index Movers

Of the stocks in the FTSE 100 index, 62 increased, 39 declined and 1 were unchanged.

Thomas Cook Group PLC decliners in the FTSE 100 index with a loss of 4.77% followed by losses in Hammerson PLC of 3.96%, in Wm Morrison Supermarkets PLC of 1.67%, in Inmarsat PLC of 1.51% and in HSBC Holdings PLC of 1.36%.

Rio Tinto PLC led gainers in the FTSE 100 index with a rise of 10.33% followed by increase in Man Group PLC of 9.90%, in Vedanta Resources PLC of 9.31%, in Eurasian Natural Resources Corporation PLC of 7.31%, in Barclays PLC of 7.14%.

Europe Markets Review

In London FTSE 100 Index closed higher 51.62 or 1.18% to 4,438.56, in Paris CAC 40 Index increased 27.02 or 0.82% to close at 3,339.05 and in Frankfurt DAX index higher 12.23 or 0.24% to close at 5,077.03. In Zurich trading SMI decreased 23.31 or 0.43% to close at 5,398.90.