Last Week in London

Last week was a disappointing one for the London market, reports Quentin Smith from OMAM UK.

The market came under pressure from oil price strength and concerns over the impact of higher interest rates on corporate earnings.

Factory prices rose for a seventh month in April, the longest run of gains since 1995, as prices of oil and other raw materials rose.

Producer prices rose 0.3% following a 0.5% gain in March, giving a year on year gain of 1.8%, up from 1.4% the previous month.

Land Registry data showed house price inflation in England and Wales accelerating in the first quarter to the fastest pace in a year, further adding to evidence of a pickup in price growth.

The average price rose 14.1% over the quarter following a 12.6% increase in the previous quarter, with all regions showing a price increase. Land Registry data is based on completed transactions and lags data from mortgage lenders, which is based on loans made to purchasers.

The unemployment total fell 6,000 in April. Thus is the eleventh consecutive monthly decline, leaving the unemployment rate at 2.9%, a 29 year low.

Wage growth accelerated in the three months to the end of March to a 2½ year high, boosted by bonuses in the financial services sector.

Earnings rose 5.2% from the year-earlier period, compared with a 4.9% increase in the quarter to the end of February.

In its quarterly inflation report, the Bank of England said that it expects inflation to accelerate to above its 2% target by early 2006 and that the economy will expand quicker than it had forecast in February, suggesting that interest rates may have to rise further.

The BoE also expects growth to peak at about 3.6% at the end of this year, above the 2.5% rate that it associates with stable inflation.

It expects growth to be driven by continued buoyancy in household and government spending and a pickup in business investment, before easing as consumer and government expenditure moderate.

Over the week the All-Share and the FTSE 100 both lost just over 1%, with midcaps down just over 2% and smallcaps losing almost 3%.

With almost no sector gainers over the week - even oil & gas lost ground, despite a crude price close to record levels - utilities and financials were the best sector performers, while the weakest were technology and basic industries.