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The FTSE 100 index closed 37.6 points higher on Friday at 6,283.5, just shy of its 6,304.2 high of the day, and well above the 6,220.6 low seen in the first hours of trading. Blue chip stocks closed the day near their session highs as traders in the UK reacted to strong early gains on Wall Street as investors breathed a sigh of relief in the wake of the as-expected US April PPI data.
Although the inflation news was in-line, it did add weight - alongside the unexpected weak retail sales figures announced- to the feeling that recent US interest rate hikes may finally be beginning to bite. Meanwhile, all of UK the broader based indices ended in positive territory, with the techMARK 100 seeing gains of 67 points.
Business was swollen by very active trading in new bid target Thomson Travel and the 3.1 million share book-building in information security giant Baltimore. Strong gains on Wall Street the day before as investors on both sides of the water digested news of the shock decline in US retail sales in April - the first fall in retail sales for around two years - had triggered hopes of an early mark-up in blue chip stocks - which have had a see-saw trading week.
However, the response in London to the unexpected decline proved to be muted, especially ahead of the release of the key April PPI data in the afternoon session. But early falls in the market were quickly pared back, with small gains emerging as investors moved back into tech and telecoms issues at the lower levels, though real concerns remain about near-term valuations in these sectors - even in the wake of the recent shake-out in "new economy" issues.
With corporate news at a minimum, the market continued to trade in shallow positive territory for most of the morning session, with only the potential bid battle for control of Thomson Travel providing any real interest. But blue chips resumed their upward path in early afternoon trading, taking comfort from the in line US producer price inflation data and excited by hopes that the benign inflation news would trigger a further rally on Wall Street on Friday.
The US data showed April PPI headline rate down 0.3 per cent from March, with the core rate up 0.1 per cent on the month - bang in line with expectations. Meanwhile, business inventories were up 0.3 per cent in March from February, slightly below estimates, while business sales were up 1.2 per cent on the month. As it was, Wall Street reacted in a positive manner, with both the DJIA and Nasdaq posting good opening gains on the back of broadly-based investor buying.
At the London close, the DJIA saw gains of 105, while the tech-dominated Nasdaq was up 115 points. But any real enthusiasm for the market was inevitably tempered by caution ahead of Tuesday's April CPI data and, more importantly, news from the Fed on the next move in US interest rates.
Although market watchers on both sides of the Atlantic have taken encouragement from weaker-than-expected retail sales numbers and Friday's in-line PPI data, there is still a broad-based consensus which believes that the Fed will hike rates by a hefty 50 basis points at next week's meeting.
Freeserve, the Internet service provider, was one of the best performers in the FTSE 100 index leaderboard, up 37 pence at 453 pence, benefiting from the wider rebound in tech issues and news that NetCall shareholders have approved the two group's strategic alliance. Sentiment was further boosted by strong figures from rival Terra Networks, the ISP recently spun-off from Spain's Telefonica. Retailer Dixons, which owns an 80 per cent stake in Freeserve, added 15-1/2 pence to 297-1/2 pence in sympathy.
ARM Holdings saw its first gains in over a week - up 20 pence at 646 pence - after positive noises from Goldman Sachs and a "buy" note from ABN Amro. Figures from technology analysts Dataquest, presented by ARM at the fund managers' meeting, suggested that there was a market for about four billion embedded control chips in 2000. About 10 per cent of these were for 32-RISC chips - ARM's speciality - and a market segment in which ARM has about a 50 per cent share. Goldman was also upbeat, saying ARM's fundamentals were "better than ever" and the RISC chip maker was doing "brilliantly." The broker reiterated its "market perform" rating and 760 pence price target.
Marconi gained 47 pence to 847 pence, excited by reports that it is set to announce significant expansion moves in the UK, which could create a raft of new jobs in the West Midlands. Meanwhile, FTSE 100 index heavyweight Vodafone Airtouch finished the day 7-1/2 pence higher at 278 pence, shrugging aside news that a UK High Court judge has ordered a full judicial review into the Department of Trade & Industry's decision to grant Vodafone and Orange PLC an extra 180 days to pay off their successful bids in the recent 3G licence auction. A full hearing has been deferred until October.
EMI Group gained 13-1/2 pence to 615 pence as Schroders Salomon Smith Barney re-initiated coverage of the stock. On the downside, new form Baltimore slid back from its earlier pole position on the FTSE 100 index - down 42 pence at 803 - after Merrill Lynch and Lehman Brothers placed 3.1 million shares, said to be on behalf of senior executives of the group, through an advanced book-building exercise. The group's 10-for-1 share split, made to improve liquidity in the Irish-based group, also took effect on Friday.
"Old economy" stocks remained unwanted, with the enthusiasm seen for these stocks in the US failing to spill over into the London market. BOC was a major faller, down 25 pence at 972 pence, after the gases giant shunned the prospect of any new bid from former merger partners, L'Air Liquide SA and Air Products & Chemicals Inc - saying it sees no prospect of a new offer. Earlier this week, the two groups said their joint pre-conditional 1,460 pence a share offer for BOC would not proceed. But both companies said they would be prepared to consider other ways of getting FTC approval for the deal and the possibility of making a new offer for BOC at a different price.
Later, BOC made it clear that there is "no realistic prospect" that the joint bidders would be able to structure an acceptable new offer. It said it is not in talks with the two companies and does not intend to enter into further talks over a possible new offer.
But analysts feel that BOC's newly-found independence may prove to be only temporary, and therefore there could be limited downside to the group's share price. Andrew Spence, chemicals analyst at UBS Warburg Dillon Read, said: "Ultimately we see another offer coming through for BOC from the two groups." "I think Air Liquide and Air Products will bid again, but they are not ready to come through yet," he concluded. BOC is due to report interim figures next week, with market watchers hoping it will deliver "new" news on its strategy.
Allied Domecq
Allied Domecq, the wines, spirits and fast food group reported a decline in pre-tax profits to £227 million for the six months to the end of February. The decline in turnover and profitability was expected as the group is being restructured and is focusing its efforts on its core brands.
In fact, Allied Domecq's chairman claimed that there is strong underlying momentum within the business and he anticipates that good earnings growth will be achieved by the continuing business for the full year. Factors such as the impact of the price on the performance of the Sauza brand and Allied's investment programme in Baskin-Robbins will reduce the rate of growth for the full year compared to that achieved in the first half.
Strong results have been achieved in an environment of significant change for the group. The improvement in profitability and earnings is a direct consequence of an increased focus on profitable volume through management of product mix, pricing and enhanced marketing support behind key brands. Ballantine's, Kahlua and Beefeater were the primary drivers of the growth of the Spirits & Wine business, increasing volumes, margin and profit contribution.
Allied's Quick Service Restaurants ("QSR") business in the USA performed well, led by a seven per cent like-for-like sales growth at Dunkin' Donuts. Losses in the International QSR business were eliminated following significant restructuring over the past nine months to create a robust platform for focused expansion.Allied Domecq has an impressive portfolio of international brands and is managing this portfolio region by region, both to grow brand equity and also to deliver sustainable earnings growth within the competitive markets in which it operates.
In an attempt to concentrate on its core brands, driving growth, improving margins and returns, Allied Domecq has increased its overall brand investment in its core brands and the effectiveness of its investment. In addition the group has promised to continue to improve manufacturing and supply chain efficiencies and is delivering corporate cost savings.
New product launches in the period include Gavanes rum in one of the fastest growing segments in Spain and further brand extensions in QSR. The Jinro joint venture in Korea has been successfully established. However, there was an overall increase in net borrowings from £1,315m to £1,491m largely due to the payment to Punch Taverns of £129m and the £100m net investment in the Jinro whisky business, offset by the free cash flow.
Analysts have welcomed Allied Domecq's slimmed down guise and have reacted positively to the sale of its pub retailing side. In view of this focus on wines and spirits forecast pre-tax profits for the full-year stand at £570 million.
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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