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The Markets
London blue chips ended the Friday trading session modestly lower after a fairly tight but volatile session, holding off their worst levels in the afternoon as the DJIA put in a midmorning rally on Wall Street, helped by fresh strength in the Nasdaq index. At the close, the FTSE 100 index was 0.3 points easier at 6,464.7, staying above its 6,452.2 morning low, but well below its post-data peak at 6,503.2. However, all the broader FTSE indices were higher, with the techMARK posting gains of 122.2 points to 3,571.85 thanks to Nasdaq strength. Volumes were solid - boosted by hefty 'when issued' trading in new issue Carphone Warehouse - with 1.7319 billion shares changing hands in 103,424 transactions.
Leading shares slipped back in early trades on Friday when the opening gain which was registered under the influence of Wall Street's overnight advance - notably strength from the Nasdaq index - was countered by caution ahead of some key US economic data. With no major UK data releases, all the early focus was directed to the US June PPI, retail sales and industrial productions numbers due in the afternoon.
US producer prices rose 0.6 per cent in June and were up 4.3 per cent year-on-year. The core rate, which excludes volatile food and energy costs, fell 0.1 per cent, and was up 1.4 per cent year-on-year. The gain in the overall PPI was slightly higher than analysts' expectations, but the core rate was below forecasts, with consensus for a 0.5 per cent rise in the overall PPI and a 0.1 per cent gain in the core rate in June. US retail sales rose 0.5 per cent in June, and the May figure was revised to show a 0.3 per cent rise, reversing the initial estimate of a 0.3 per cent fall.
The report was stronger than expected, with consensus for retail sales to rise 0.4 per cent in June. Analysts pointed out that the retail sales strength was slightly worrying for the US interest rate outlook, but said this was countered by the surprise fall in the core rate for US wholesale inflation. New York shares were uncertain how to interpret in early dealing, with both the DJIA and Nasdaq moving higher in early deals, before falling back again.
After recent comments from the IMF regarding the need for a further US monetary tightening - which Fed chairman Alan Greenspan reportedly concurred with - analysts continued to highlight fresh uncertainties over global interest rate trends. Only some good gains from selected technology issues in reaction to the Nasdaq gains provided the FTSE 100 index with underlying support, but this was countered by sharp falls in heavyweight drug and oil issues following selling overnight in New York.
This two-way pull continued throughout the morning session in the absence of much corporate news, although by lunch time the bulls had managed to take control, with UK blue chips ticking higher, albeit not moving far above opening levels awaiting the US data. The FTSE 100 index registered a new peak for the session following the release of a mixed, but benign set of US economic data.
UK blue chips recovered from their morning torpor, rallying in line with S&P futures traded on Globex - which bounced up to be 9.50 points firmer, indicating a better performance from the DJIA in the afternoon following last night's tame showing. However, underlying worries over UK interest rates, soon pulled the FTSE 100 index back from its initial peak, with blue chips just settling back for some consolidation.
On Wall Street by London's close, the DJIA had rallied from earlier falls, adding 4.95 points at 10,793.66, while the Nasdaq index advanced a further 44.84 points to 4.219.70. Sharp falls from blue chip drug stocks overnight on Wall Street was dominant on the list of blue chip fallers, led by SmithKline Beecham, which topped the fallers, 40-1/2 pence off at 828-1/2 pence, with merger partner Glaxo Wellcome close behind, shedding 89 pence at 1,822 pence, while AstraZeneca lost 63 pence at 3,019 pence.
The pharmaceutical declines were made in sympathy with sharp falls from drug stocks in the US, overnight on worries over pricing levels in the US Oil stocks suffered from widespread selling off in mid-afternoon trading, following a drop in the price of crude as uncertainty on an OPEC-wide agreement on output increase persists; leading oil producers said they have failed to call an extraordinary general meeting to deal with the demand for higher production.
Shell was 18 pence lower at 546-1/2 pence, BG Group shed 2 pence at 400-1/2 pence and BP Amoco was 9 pence easier at 600-1/2 pence; of the second liners, Enterprise Oil was 18 pence lower at 522 pence.
Corus shed 1-3/4 pence at 94 pence after announcing that it is to cut another 1,200 jobs at it Corus Construction & Industrial unit - last month the steel group axed 1,430 jobs. Merrill Lynch downgraded its stance on the steel group to 'neutral' from 'accumulate'. But selected technology, media and telecom blue chips benefited from Nasdaq's ongoing strength, led by CMG which topped the FTSE 100 leaders board with an 84 pence gain at 1,000 pence, while Sema advanced 65-1/2 pence to 928 pence. Misys followed suit, gaining 38 pence at 570 pence, while Logica added 68 pence at 1,698, and Colt Telecom firmed 187 to 2,488. ARM Holdings - 53-1/2 pence higher at 820 pence - was in demand ahead of results, and after recent strong performances from software issues.
Media issues continued to attract attention after the Competition Commission cleared Carlton Communications and United News & Media's planned merger. However, the DTI stipulated that the merger approval was conditional on the disposal of the Meridian TV franchise within the next six months. The DTI also unconditionally cleared Granada's competing offers for either United News or Carlton, raising the prospect of a sector bidding war.
United News & Media fell 13 pence to 885 pence, while Carlton shed 56 pence at 770 pence as analysts speculated that Granada Media could just buy up the Meridian business rather than launching a bid for either of the two firms. Granada Media 'when issued' shares firmed 29 pence to 600-1/4 pence - a good premium to Monday's 515 pence flotation price - with its parent Granada's shares up 21 pence at 638 pence. Meanwhile, new issue Carphone Warehouse rung up a good initial premium to its offer price - set at 200 pence per share - in early 'when issued' dealings following today's over-subscribed flotation. However, having hit an early peak at 237-1/2 pence, the shares drifted back to end almost flat at 201-1/2 pence as 133.46 mln shares changed hands.
Technology issues provided almost the complete line-up for the second line risers, boosted by Nasdaq's overnight advance: Kewill Systems added 65 pence at 765 pence, Durlacher gained 11 pence at 76-1/2 pence, while Baltimore put on 67-1/2 pence at 629 pence and Psion was 62 pence higher at 772 pence. Infobank topped the FTSE 250 gainers, adding 145 pence at 755 pence reflecting an encouraging AGM statement and reassuring results overnight from US rival Ariba.
Water issues continued to be out of favour, with Anglian Water shedding another 14 pence at 585 after the recent launch of its h2go, while Kelda Group lost 5 pence at 325 pence still awaiting the DTI decision on its plans to demutualise its Yorkshire Water unit.
UK Smaller Caps closed the last session of the week at their highest intra-day level, pushed higher by a bid news and following the release of a mixed, but fairly benign set of US economic data. The FTSE Smaller Cap index closed 10.0 higher at 3,389.0, well off earlier lows at 3,380.0 Of small cap risers, Irish based Adare Printing remained in demand, firming 150 pence to 700 pence - over 27 per cent in value - after confirming details of an MBO offer for the firm. NAPG is offering 715 pence per share in cash for Adare, valuing the firm in total at £100.6 million. The bid news offset a decline in the full year pre-tax profits of the group.
Pace Micro Technology
Pace Micro Technology, the set-top decoders for televisions group, reported a 58 per cent increase in pre-tax profits to £23.9 million for the year to the end of May 2000. Pace announced that by the end of 2000, it is likely to see more UK homes connected to the outside world by digital television than by a personal computer. As other countries accelerate the switch to digital, they will mirror this trend. The elements that are needed for a society to receive electronic online information in their homes, without access to a PC and whilst not having to be computer literate, are beginning to take shape.
Pace has positioned itself in the digital television value chain as a supplier of interactive terminals for the home, regardless of carrier, operating system or network operator. In this way it maintains an open approach to the standards that proliferate and is in a position to build a greater variety of platforms than its competition.
It is expected that a total of 20 million digital set-top boxes will be installed around the world in 2000. By 2005 annual installations are forecast to expand to between 70 and 80 million. Whilst a few years ago the group was shipping 75% of its products overseas, during the past year, Pace has concentrated on the fastest growing geographic market, the UK. Next year, the group expects the share of overseas business to grow as shipments to the US commence and European broadcasters compete more actively.
Throughout the world there is continued interest from existing and new network operators in launching digital television. Pace plays an active role in bidding for launch business and expects to make further progress throughout the coming year.
The decline in margin, which Pace signalled at the beginning of the year, was due to two major factors. First, it seemed determined that it would receive the largest share of its home market at a time of strong innovation and growth and second, the rate of decline of component prices was less than anticipated at the time it agreed terms with its customers. In the short term, Pace does not envisage that this situation will improve and it anticipates continued tightness in component supply.
The growth and competition within the UK digital television market has provided a significant increase to Pace's business. Pace is well positioned to capture increasing business world-wide. The orders that the group received from Time Warner Cable and Comcast Cable Communications in the US will provide a base for future growth.
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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