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The Market
Blue chips closed a quiet Friday session firm but just off their session highs, with the FTSE 100 index finding support late in the day from strong gains on Nasdaq - which helped to provide renewed forward impetus for technology and telecoms issues. The FTSE 100 index was trading 73.7 points higher at the close at 6,312.7, but just shy of its 6,312.6 high of the day seen shortly before the closing bell.
Only the Smaller Cap index bucked the broadly firm market trend - down 1 point at 3,354.3, as attention focused on bargain-hunting in blue chip issues. Volume was a respectable but unexciting 1.323 billion shares in 101,166 transactions.
After large losses on both Nasdaq and the DJIA overnight, the stage seemed set for a weak opening on Friday in London, with both "new economy" and "old economy" issues falling back in New York as a further rash of second quarter profits warnings sparked further concerns about current earnings estimates. But the initial concerns were soon set aside as bargain hunters - who have been noticeably absent over recent days - began to move back into telecoms and selected tech issues, driving the wider London market higher.
The FTSE 100 index quickly pushed through the 6,300 level as numerous brokers made it clear that the shake-out in "new economy" issues over recent days was looking well overplayed and value was to be had at the lower levels. This more positive tone was boosted further by fund managers window dressing ahead of the end of the second quarter, and ahead of the long weekend break in New York. By midmorning, however, the initial enthusiasm for tech and telecoms issues seemed to be running out of steam - pulling the FTSE 100 index back from its high - though "quality" issues continued to see fresh buying.
The drift lower continued through to midday as market players here looked to Wall Street for fresh inspiration. As it was, Wall Street soon shrugged aside early weakness and began to push higher, with the Nasdaq composite - after a shaky day on the back of the Unisys profits warning - once again attracting fresh demand. This renewed enthusiasm for Nasdaq generated renewed excitement in London and saw the FTSE 100 index reach its high for the day.
At the London close, the Nasdaq composite was up around 65 points at 3,943.01, though the DJIA remained in negative territory - around 14 points lower at 10,383.89. Traders pointed out, however, that the gains seen in late trading on Friday were all made on the back of very low volumes and warned that the picture during the following week may be much more shaky ahead of the Bank of England's MPC meeting.
The feeling is that the UK central bank, on the back of recent statistical evidence, will signal for the fifth consecutive month that UK interest rates are on hold at six per cent. Since the June meeting there has been growing evidence that the UK economy is finally coming off the boil, with average earnings falling sharply, sterling stabilising and retail sales looking soft in the second quarter.
Royal Sun continued to head the FTSE 100 index leaderboard, up 31-1/2 pence at 429 pence, as broker Cazenove turned outright buyer of the insurance group for the first time in two years. Some of the more cynical suggested that the change in heart at Cazenove could presage some form of corporate action by the insurance group - though ideas on what the next move may be were few and far between.
Financials and other "old economy" stocks enjoyed a brief return to favour late in the day, shrugging aside the Dow Jones' woes. Schroders was one of the best performers, up 55 pence at 1,118 pence, and Amvescap up 39 pence at 1060 pence. Banking issues had a mixed showing, with selected issues hit hard by a sector downgrade and selected individual stock downgrades by Schroder Salomon Smith Barney. Lloyds TSB was one of the hardest hit, down 16 pence at 624 pence, as the broker moved the stock to underperform.
Selected tech and telecoms issues continued to attract fresh buying as bargain hunters continued to move in at the lower levels, with "quality" blue chip and mid cap issues seeing the major benefit. Logica was well-bid, up 59 pence at 1,564 pence, while Freeserve rose 13 pence to 325 pence, Energis and CMG 44 pence higher at 936 pence. Colt Telecom was also marked higher, up 73 pence at 2,217 pence, as was ARM Holdings - up 31-1/2 pence at 706 pence. However, FTSE 100 index heavyweight Vodafone Airtouch saw a see-saw session - finally ending the day up 3 pence at 267 pence - as a combination of Nasdaq gains and positive noises on current valuations from leading brokers helped the stock back into positive territory.
Lehman Brothers was a fan, saying that it believes that the extreme weakness seen in the telecoms stocks over recent days is well overdone and that for Vodafone a significant buying opportunity has now opened up. Deutsche Bank - which does most of the Vodafone business in London - agreed that the slide in Vodafone shares is looking overdone, repeating its "strong buy" advice and pointing out that the stock is trading at significantly below the broker's own fair value estimate of around 465 pence.
British Telecom recovered from its lows late in the day, but still finished down 6 pence at 854 pence as the market digested news of its £4.2 billion partnership in Japan and as Morgan Stanley Dean Witter cut its rating on the telecoms giant to "neutral" from "outperform".
A raft of other broker rating downgrades hit several leading stocks hard: Hilton Group attracted a wave of fresh selling, down 6 pence at 232 pence, as Lehman Brothers reduced its rating on the hotels group back to a "neutral" from "buy" and removed it from its European Recommended Portfolio. The broker also cut its 2000 and 2001 pre-tax estimates for Hilton to £316 million and £339 million respectively.
British Airways fell back 2 pence to 380 pence as SG Securities moved the stock to "hold" from "buy" on valuation grounds following the airline share's recent out-performance, while Corus Group fell 6 pence to 96-1/2 pence as Morgan Stanley cut its rating from "strong buy" to "outperform" and its 12-month share price target from 250 pence to just 150 pence.
Reuters was one of the major fallers, losing a further 50 pence to 1,127 pence in a weak media sector as news of the expansion of its US news coverage failed to inspire.
Meanwhile, mining stocks were in focus after UBS Warburg Dillon Read said it has taken a positive stance on the sector. The brokerage advised clients to "buy" Billiton, 9 pence firmer at 269 pence, and Anglo American, which was also boosted by a Cazenove "buy" note and £36 target price, and Lonmin, 23 pence higher at 732 pence. However, Rio Tinto bucked the firm trend, falling 17 pence to 1080 pence after a report in the Australian Financial Review said several of the mining group's employees in Borneo face sexual harassment and rape charges from local women.
NSB Retail was one of the best performers among the Mid Caps, up 27-1/2 pence at 257-1/2 pence, as the market warmed to news of the appointment of Iceland head Stuart Rose to the board. Rank Group attracted some fresh speculative buying late in the day, with brokers suggesting that "hot money" was flowing into the stock just near the close ahead of comment in the weekend press. Rank shares - which had done nothing for most of the day - closed up 12 pence at 153 pence. Games maker Eidos also enjoyed fresh speculative support - 40 pence higher at 485 pence - with rumours circulating this morning of informal take-over talks with US games publisher Electronics Arts.
The FTSE Smaller Cap index closed 1.0 down at 3,354, just off its lowest point at 3,352.6 and below its high of 3354.8 - while Blue chip stocks, and the wider FTSE indices, closed in positive territory. Talk of a possible MBO continued to underpin Hamleys, up 16-1/2 pence at 168 pence, following press speculation that Charterhouse Development Capital is bidding 170 pence a share for the toy group, though other reports claim that its chief executive is heading up a £40 million management buy-out bid.
BOC
BOC, the industrial gas supplier, reported a 13 per cent decline in pre-tax profits to £161 million for the six months to 31 March. However, manufacturing output in BOC's key markets continued to grow in the fiscal second quarter but at a slower pace than in the previous quarter.
The rate of growth slowed in Australia while preliminary statistics suggest that manufacturing activity in the UK and in South Africa could have declined in the second quarter. US manufacturing output continued to expand strongly and there were increasingly positive indications in continental Europe and Japan.
In both the UK and the US, economic growth was once more concentrated in technology-based rather than basic industries. BOC's profit of its gases business was shown after making a charge of £6.4m in BOC's Indian subsidiary following a thorough and extensive examination of all balance sheet procedures and controls as well as the implementation of a new suite of IT systems. The charge was principally in respect of debtors and inventory but also included provisions for an under-funded pension liability and costs relating to tax and legal matters.
The nitrogen complex, in which BOC is a leading partner with a 30 per cent share, has begun production in Campeche, Mexico. The first of four air separation units (ASUs) has begun production of high purity nitrogen which is already being pumped through 70 miles of onshore and offshore pipeline to oil platforms in the Gulf of Mexico to test performance.
The project is running ahead of schedule and performance testing of the other three ASUs is scheduled to be completed over the next few months. Under the terms of a 15-year supply contract, high-pressure nitrogen will be supplied to the exploration and production arm of PEMEX, the national oil company of Mexico, for injection into the Cantarell oilfield to increase recovery of oil reserves.
Meanwhile, in BOC's Vacuum Technology division, order intake in the second quarter was above that of the previous quarter and orders taken in March were above the previous peak seen in December 1999.
The group's CEO seems optimistic and asserts that BOC's operating units have performed strongly in
their local markets and this has helped the group to report another highly satisfactory result that is a sound basis for confidence in the future.
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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