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The Market
Blue chips finished a volatile Friday session firm but just off their day's highs, with the market resuming its upward trend in the afternoon session as traders reacted to a strong opening on Wall Street following the US non-farm payrolls data - which although slightly stronger than some had been expecting - failed to spark inflationary fears.
The FTSE 100 index ended 39.2 points higher at 6238.8, shy of its 6267.9 morning high, but well above the 6,190.5 low seen shortly before the Wall Street open. All the broader FTSE indices finished the session in positive territory, with the techMark 100 posting gains of 36.94 points at 3757.35, thanks to Nasdaq's gains in early New York deals. Volume was 1.283 billion shares in 90,510 transactions, with trading picking up in the afternoon session as the non-farm payroll and average earnings data was digested.
Corporate news provided some pockets of interest in early trade, but failed to offset the wider market caution ahead of the key US non-farm payroll data later in the day. For much of the morning, traders were quite happy to mark time, using the opportunity to cherry pick "quality" stocks at the comparatively lower levels.
But the slow drift that persisted for much of the morning session was finally ended on the release of the US data, which although broadly in line with expectations, demonstrated the tightness of the labour market and higher average hourly earnings. Although there was an initial mark-down on the back of the figures, largely in anticipation of opening weakness on Wall Street, the consensus among market players was that the data did not alter significantly the economic backdrop facing the Fed when it meets in two weeks time.
As most analysts expect a hike in US interest rates, it looks still in the balance whether the Fed will choose to make a pre-emptive strike and hike by 50 basis points or merely act to cool the economy by putting in place a quarter-percentage point tightening. Certainly, there was some degree of relief that Wall Street took the data in its stride, with many feeling that jobs data did little to alter the wider economic picture. As it was, Nasdaq was trading 81 points higher at the London close, with the "old economy" dominated DJIA posting rises of around 49 points.
Quality tech stocks and "old economy" shares alike fuelled the FTSE 100's upward rise. Marconi rose 95 pence, 11.86 per cent, at 896, as investors moved back into the stock following good first quarter results from rival Alcatel. ARM Holdings put on 56-1/2 pence to 718 pence, and Baltimore rose 147 pence to 7,266 pence, while Freeserve - which has had a volatile performance over recent days - gained eight pence to 407 pence.
Telecoms issues, which have been under pressure in recent days, were back in favour, led by FTSE 100 index heavyweight Vodafone Airtouch, up 8-1/4 pence at 276-3/4 pence. Cable & Wireless gained 27 pence to 1,021 pence. Thus saw some further buying, up 11 pence at 365-1/2 pence, as HSBC Securities repeated its "buy" advice and 550 pence price target after a meeting with the operator, though the target is not nearly as punchy as the 700 pence being touted round by Goldman Sachs earlier in the week.
Capita Group attracted fresh interest, up 115 pence at 1,642, as sector watchers digested news that it has been selected as the UK government's preferred partner in a new learning scheme. The information systems consultancy company indicated that the deal, which is something of a coup for the group, could be worth in excess of £50 million over five years.
The heavily-weighted oil stocks also saw some fresh buying after record results from Shell on Friday, up 20-1/2 pence to 527-1/2 pence, which attracted a slew of positive broker comment. The enthusiasm spilt over into BP Amoco, up 29 pence at 588 pence, ahead of its first quarter results next week - with players looking for some good news on the prospective integration of ARCO.
Meanwhile in the banking sector, Royal Bank of Scotland advanced up the FTSE 100 leader-board, 32-1/2 pence stronger at 1043-1/2 pence, after announcing it has sold it Ulster Bank Investment Managers for £60 million to KBC Group. Halifax topped the list of FTSE 100 index decliners, down 39-1/2 pence to 566 pence, with some players suggesting that it could be a possible bidder for the soon-to-be Friends Provident.
BAA was up 14-1/2 pence at 424 pence, following confirmation that it has secured sole negotiation rights with the City of New York over the possibility of long term management, operation and development of the state's John F Kennedy and La Guardia Airports.
UK Smaller Caps closed up, following the example set by Nasdaq and the DJIA, as well as all the other FTSE indices, which reacted positively to stronger-than-expected US non-farm payrolls data, dealers. The FTSE Small Caps index closed up 13 points at 3,211.3 points, barely shy of its 3,211.4 all day high, and well off its low of 3,198.8.
Property Internet was one of the star performers in the FTSE Smaller Caps, soaring 18 pence, or 21.82 per cent, at 100-1/2 pence following confirmation that it is in preliminary discussions with a view to forming a strategic alliance with a financial institution.
Robert Lowe was up one pence at 7-1/2 pence, as hopes of an early reverse take-over were excited by news of the planned sale of its existing businesses in order to clear all debt. The hope among market watchers is that the company will become the latest to jump on the Internet bandwagon.
Shell
Shell Transport, the oil and gas exploration and production group announced pre-tax profits of $5.87 billion. Shell kicked off the oil companies' reporting season in Europe by revealing first-quarter net income of $3.3 billion, up from $1.6 billion in the prior year, with much of the surge in profitability attributed to the hike in oil prices. Aside from the headline numbers, sector analysts were impressed by Shell's continued focus on cost-cutting and the sharp hike in ROCE, one of the main measures of any integrated oil group's internal efficiency, to 14 per cent.
This success story was also attributable to the rise in oil prices. Brent crude prices averaged $26.95 a barrel in the first quarter 2000 compared to $11.30 a barrel a year earlier. Prices rose in January and February due to low stock levels and concern about supply shortages, peaking at $32 a barrel in early March. Prices declined thereafter to end the quarter at $24 a barrel as expectations grew of increases in crude oil production later in the year.
Shell's CEO speculated that overall demand continues to grow and there is spare production capacity in relatively few countries. This should ensure that oil prices for the rest of the year remain well above Shell's long term premised price of $14 a barrel.
Refining margins in Rotterdam and Singapore remained depressed in the first two months of the year as product price rises lagged the increase in crude prices. However margins increased sharply in March as crude prices fell. This resulted in average refining margins for the quarter of $1.75 a barrel in Rotterdam and $1.50 in Singapore compared to margins a year earlier of $1.10 and $1.20 a barrel respectively.
US Gulf Coast margins firmed during the quarter, averaging $3.75 a barrel compared to $1.55 a barrel in the first quarter 1999, as declining gasoline stocks increased supply concerns ahead of the US summer driving season. Low product stocks are expected to provide continuing support for refining margins in the USA and Europe in the next few months. However, in Asia-Pacific, the significant surplus refining capacity will keep margins under pressure.
Chemicals margins remained under pressure in the first quarter of the year as feedstock prices continued to rise. There was, however, some improvement in trading conditions in Asia-Pacific relative to the fourth quarter 1999 as the recovery continued. The outlook for trading conditions remains mixed. The benefits of increased demand due to growth in key economies may be offset by the effects of additions to industry capacity.
Actions implementing Shell's strategies outlined in December 1998, and reinforced in the December 1999 presentation to the financial community, of increased personal accountability, portfolio rationalisation, selective capital investment and cost improvement, continued in all business sectors. These strategic themes have been embedded through new business processes and form the platform for business development and growth. Good progress towards the increased cost improvement target of $4 billion a year (including exploration expense savings) continued to be made across the businesses.
Exploration and Production adjusted earnings of $2,303 million were an all time record and more than three times the earnings in the corresponding period last year. This was mainly due to higher oil and gas prices, cost improvements and some tax related benefits.
Meanwhile, Oil Products' adjusted earnings of $467 million were eight per cent lower than a year ago as the substantial decline in marketing margins more than offset the benefits of higher refining margins and lower costs. Chemicals' adjusted earnings of $268 million were 171 per cent higher than a year ago. The benefits of cost improvements, higher income from associated companies, and volume increases more than offset the effects of lower unit margins. Capital investment for the quarter totalled $1.5 billion, 36 per cent lower than a year ago.
Brokers reacted positively to Shell's results. Warburg Dillon Read used the opportunity to raise its price target to 600 pence from the previous 550 pence, and repeated its long-held 'buy' advice, with SG Securities, Lehman Brothers and Dresdner Kleinwort Benson all adding their voices to the chorus of approval as did house broker Deutsche Bank, repeating its 'buy' advice and its 12-month price target of 585 pence.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future.
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