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London last week…

02 November 2004 Angelo Coppola

The London market advanced last week, shrugging off late news of weaker than expected third quarter US GDP growth, as oil traded below recent highs amid a surprise Chinese interest rate rise, the first for nine years.

Quentin Smith from OMAM UK reports that house prices fell for the first time in three years in October, according to Nationwide Building Society, suggesting that housing market weakness is intensifying. 

Prices declined a seasonally-adjusted 0.4%, the first drop since October 2001 and the biggest decline since February 2001.  From a year earlier, prices rose 15.3%, down from a 17.8% rise the month before. 

Nationwide noted that prices have been stretched by weak real take-home pay growth, rising interest rates and stretched affordability and expects prices to stagnate, rather than decline sharply in the next few years.

Data from the British Bankers' Association showed fewer mortgage approvals in September than the previous month, the third successive monthly decline, suggesting that a slowdown in the housing market is taking hold. 

The total number of loans approved was 3.3% lower than a month earlier and 22% below the level of September last year, while the value of mortgage approvals fell 2% from August to £15bn.  The BBA expects underlying net mortgage lending to continue to be relatively weaker in the nest few months.

Over the week the All-Share, FTSE 100 and smallcap indices all advanced 0.2%, with midcaps gaining 0.6%.  Utilities provided the best sector performances, while resources accounted for the weakest.

Oil company BP (-2.6% to 528p) reported a 53% rise in third quarter profit because of record crude prices.  BP is the first of the world's largest oil companies to report a surge in profit in the third quarter, as New York oil prices have surged 68% this year to more than $55 a barrel. 

Earnings were hurt by $600m of costs for environmental clean-ups and the write-off of an Egyptian gas rig after a fire.  BP produced 3.91m barrels of oil and gas a day, up from 3.5m a year earlier. 

It has a target to produce an average of more than 4m barrels a day this year, which would be up 11% from 2003, although it may struggle to reach the target after Hurricane Ivan forced fields to shut down in the Gulf of Mexico.

British American Tobacco (-0.5% to 820p), the world's second largest cigarette maker, reported a 60% rise in third quarter profit, boosted by the acquisition of Italy's largest tobacco company and a gain from selling its Lane business. 

BAT last year expanded in Italy by buying Ente Tabacchi Italiani, the country's largest cigarette producer, for €2.3bn.  It also sold Lane, a business in the US, to Reynolds American for $400m this year as Reynolds and BAT merged their US businesses.

Mortgage bank Abbey National (+3.3% to 632p), currently subject to a takeover bid from Santander Central Hispano of Spain, reported a rise in third quarter pretax profit, with earnings advancing at its main consumer banking business despite losing market share to competitors in the three months to the end of September. 

Abbey's shareholders agreed to a £9.1bn takeover by Santander, Spain's largest bank, after an expansion into corporate lending led to two years of annual losses. 

The company subsequently sold unprofitable corporate bonds, aircraft leases and other assets and returned to its consumer banking roots.

Quick Polls

QUESTION

As National Treasury mulls a two-bucket retirement system, mandatory contributions and preservation, regulation 28 is being amended to allow up to 40% of retirement fund assets to be invested in SA-based infrastructure… Which of the following retirement fund ‘tweaks’ would you consider most beneficial to your clients?

ANSWER

Give fund members emergency access to retirement savings
Let fund members invest 40% in infrastructure
Let fund members invest 40% offshore
Mandatory preservation when resigning from a fund
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