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London - last week

14 September 2004 Angelo Coppola

The London market remained underpinned last week by strong company results, corporate activity and speculation over an early peak in interest rates, while the Bank of England provided no interest rate surprises.

Quentin Smith from OMAM UK reports that at its monthly meeting, the Bank of England’s Monetary Policy Committee left its key interest rate unchanged at 4.75% as it assessed whether borrowing costs are constraining consumer demand.

The decision was widely anticipated amid evidence of softer industrial, housing and retail sales data.

Expectations are that the next rise will be at the November meeting, although a continuation of recent weaker data may prompt the MPC to wait longer to gauge the impact of its five rate rises since last November.

Retail sales growth slowed in August to the weakest pace since December as wet weather and higher interest rates kept shoppers out of stores, according to the British Retail Consortium.

Manufacturing production unexpectedly fell for a second month running in July. Output fell 0.2%, against expectations of a 0.5% gain, giving the first back-to-back monthly declines since October 2002 and adding to signs that rising interest rates and raw materials prices are damping demand.

The trade deficit widened in July as the oil balance went into deficit for the first time since August 1991. The trade gap was £5.2bn, against £5.1bn in June and worse than the forecast deficit of £4.8bn.

Declining North Sea oil production led the UK to import more oil than it exported for the first time in 13 years, while UK exporters failed to capitalise on global recovery, losing market share to Europe and Asia.

Over the week the All-Share Index advanced 0.2%, with good gains in midcaps (+1.5%) and smallcaps (+2.3%) being offset by a decline of 0.1% in the FTSE 100.

The best performing sectors were telecoms and technology, with insurance also strong, while consumer staples such as tobacco and pharmaceuticals were almost universally weak.

Aerospace engineering company Meggitt (+3.4% to 240p) reported a more than sixfold rise in first half profit as it sold more aircraft parts and a year earlier loss on the sale of a unit was not repeated.

Meggitt noted that demand for spares and repairs in the civil aftermarket is steadily improving, while military equipment sales remain strong. The company generates more than half its income in the US.

Cigarette maker Gallaher Group (-2.1% to 643p) reported a 31% rise in first half profit as it sold more tobacco in Eastern Europe. Gallaher, the second largest UK cigarette maker by market share, sells about half the cigarettes it makes in the countries that make up the former Soviet Union.

It has made acquisitions to expand in Eastern Europe, trying to overcome falling sales in Britain and Germany., including Liggett-Ducat in 2000 and Austria Tabak in 2001.

ITV (-1.0% to 103p), the UK's largest commercial television network, reported a 48% rise in first half profit after advertising sales rose the most since 2000.

ITV benefited from a recovery in advertising spending compared with last year, when the war in Iraq prompted companies to pull campaigns. ITV, created in February after Granada bought rival Carlton Communications Plc for $1.9bn, is cutting costs and boosting programme spending to compete with pay television rivals.

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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