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The markets

09 October 2006 Angelo Coppola

Quentin Smith, Investment communications manager at Old Mutual in the UK, reports on the London market, the Efficient group looks local and the Nedcor Economic Unit looks ahead.

The London market ended the week higher last week, benefiting from strength in the Us, where the Dow Jones Industrial Average reached a succession of record highs amid prospects of stable US interest rates and encouraging comments from Fed Chairman Bernanke.

In the UK, the Bank of England left its benchmark lending rate unchanged at 4.75% for a second month after a decline in oil prices eased inflationary pressures. In contrast, the European Central Bank raised its benchmark rate by a quarter point to 3.25%.

Over the week the UK All-Share Index rose 0.9%, with midcaps the strongest area, rising 1.8%, with smaller companies 1.1% higher and the FTSE 100 lagging with a gain of 0.7%. There was no clear theme among the sector leaders, with utilities, industrials, financials and consumer services all broadly higher.

At the other end of the scale, miners and oils were weaker on lower underlying prices, while online gaming stocks fell sharply after the US passed laws to shut down internet gambling in the US. Congress approved legislation to prevent credit card companies from collecting payments for bets, the culmination of a clampdown on online gaming in the US, which accounts for around half of the $12bn internet gambling market.

Locally, according to Efficient Group reports that trading on the JSE was marginally to the upside on Friday with the All Share index ending the day 0.16% higher. But market sentiment turned sour after the jobs data released in the US was negative. Industrial and financial sectors managed to keep their heads above water while resources were 0.06% lower at the close of the day.

The dollar strengthened again the leaving the rand 0.24% weaker, as well as the euro (-0.81%) and the yen (-1.04%). The rand gained some ground against the euro (0.79%) and pound (0.37%). Meanwhile the Nedcor Economic Unit says that this weeks focus will be on the Reserve Banks Monetary Policy Committee (MPC) meeting on Wednesday and Thursday.

The Economic Unit, in line with market expectations, expects the MPC to hike the repo rate by a further 50 basis points to 8,5% due to significant risks to the inflation outlook. There is, however, a possibility that the MPC may opt to raise by 100 basis points to stabilise the currency market and send a clearer picture to consumers.
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