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London calling

10 October 2004 Angelo Coppola

The UK market advanced through the early part of last week amid optimism over earnings and on expectations of an earlier than expected peak in the interest rate cycle.

Quentin Smith at OMAM UK reports that this was due to data releases continued to point to economic softening, before giving up some gains late on following the publication of weaker than expected US job creation numbers in September.

As expected, the Bank of England’s Monetary Policy Committee kept its benchmark interest rate unchanged at 4.75% as recent economic data releases including a drop in factory output and weaker growth in services indicated that higher borrowing costs are capping growth. 

Opinion is now divided as to whether the MPC will raise rates again before the end of the year.  The European Central bank also left its benchmark refinancing rate unchanged, at 2%.

Over the week the All-Share, FTSE 100 and midcap indices gained 0.9%, 0.8% and 0.7% respectively, while smaller companies outperformed with a gain of 1.9%. 

Sector performance was mixed with financials and resources heading the list of gainers, while consumer staples were the weakest.

BP (+2.0% to 551p) reported an 11% rise in oil and gas production in the third quarter, below expectations as storms in the Gulf of Mexico restrained growth.  BP also expects earnings to be hurt by $600m of costs for environmental cleanups and the write-off of an Egyptian gas rig after a fire. 

Higher export taxes in Russia will lower earnings further.  Oil companies have been pumping 29% below normal rates in the Gulf of Mexico after Hurricane Ivan swept through the area, damaging rigs and forcing evacuations. 

The shutdowns contributed to a jump in oil prices, which reached $50 in New York for the first time in history on 28th September. 28.

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