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A little overdone

19 September 2004 Angelo Coppola

The market was supported by positive corporate news last week.

Quentin Smith at OMAM UK reports thatdespite stronger than expected retail sales data which put pressure on interest rates, while the oil price moved higher on concerns that Hurricane Ivan will disrupt supply in the Gulf of Mexico.

The annual rate of consumer price inflation fell in August to its lowest rate since April as the price of clothes, shoes and toys rose less than a year ago following seasonal sales. Following a 0.3% in July, prices rose 0.3% in August to give an annual rate of 1.3%, down from 1.4% the month before.

The fall brings inflation closer to the Bank of England’s third quarter target of 1.2%. Goods prices fell 0.7% in August from a year earlier, compared with a 0.3% decline the month before, while the cost of services rose at an annual rate of 3.5%, compared with 3.4% in July. Clothing prices fell 6.2% from a year ago and the price of shoes declined 2.8%.

Wages including bonuses rose in the three months to the end of July at the slowest pace since the last quarter of 2003, indicating that faster growth is not fuelling inflation.

Wages rose 3.8%, down from 4.3% in the previous three month period. The fastest economic growth in almost four years and near record employment have failed to boost wage growth above the 4.5% that the Bank of England has said is compatible with stable inflation.

Central bank policy makers noted that declining union power has limited wage demands, while immigration has increased the available pool of labour. The unemployed total fell by 6,100 to 830,200, the 15th consecutive monthly decline.

Over the week the All-Share and the FTSE 100 both advanced 1.0%, with midcaps and smallcaps both gaining 0.8%. The strongest performing areas of the market were technology and resources, while the consumer groups, both cyclicals and staples, lost ground.

Drugmaker AstraZeneca (-4.8% to 2333p) came under pressure after a US Food and Drug Administration advisory panel failed to grant approval to blood thinner Exanta.

The panel ruled that Exanta's risk of harming the liver and heart outweighs potential benefits in preventing blood clots. The company was counting on Exanta, which was forecast to have sales of more than $1bn, to help replace revenue lost to generic versions of its Prilosec heartburn drug. Exanta may not now reach the US market.

HBOS (+7.4% to 766p) said that did not plan to bid for Abbey National (-7.8% to 571p), clearing the way for Santander Central Hispano's £8.7bn takeover of Britain's second largest mortgage lender.

HBOS had considered making an offer for Abbey after Santander, Spain's biggest lender, agreed to buy the bank in Europe's largest ever cross-border bank merger, but subsequently decided that the deal would have benefited Abbey shareholders to the detriment of HBOS shareholders.

The RICS housing market survey provides the first indication of the state of the market in September and may show that August price weakness was overdone.

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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