DON’T PANIC, don’t panic. The City’s dealers were rushing to keep up with the Corporal Joneses yesterday, as disappointing economic data and turmoil on the foreign exchange markets sent share pricesinto a last-minute dive.
The trigger was renewed fears for the fragile world economic recovery, and in particular for the state of health of the engine of world growth, the US. Two pieces of data together suggested the debt- burdened US consumer may not be robust enough to keep growth going if business investment doesn’t pick up the slack soon. The September measure of US consumer confidence came in below forecasts (76.8 compared with expectations of 80.0, and against 81.3 in August) while a manufacturing survey, the Chicago PMI, was even further below (51.2, compared with forecasts of 58.5, and against 58.9 in August).
Add to that another intervention by the Bank of Japan to push down the value of the yen – whose rise in recent days has threatened to choke that country’s exporters – and dealers sniffed more trouble to come in the foreign exchange markets. The intervention only served to highlight the dramatic recent decline by the dollar, in which many of the UK’s biggest companies make large proportions of their earnings.
Suddenly, the FTSE 100 sell-off of the past fortnight looked less like profit-taking and more like the harbinger of economic trouble to come: the index was sent down a further 51.4 to close at 4,091.3 as the Dow Jones Industrial Average was trading more than 100 points lower.
Only a baker’s dozen FTSE 100 shares managed to post gains on the day and the brunt of the sell-off was borne by financial stocks. All the insurers slumped: Aviva fell 15p to 467p; Legal & General was 2.5p lower at 92.25p; Prudential dipped 10.75p to 410.75p; Friends Provident was off 3.75p at 128.5p; and poor old Royal & SunAlliance crashed 4p to 80.75p, increasing the chances that new rights issue shares will get stuck with the underwriters and have to be placed in the market.
Falling equity markets spooked Schroders and Amvescap, the fund managers, which were off 37.5p at 671p and 22p at 455.5p respectively. And Aberdeen Asset Management was off a penny at 70.5p as investors worry over the repercussions of the split capital investment trust debacle. By contrast, Man Group, which manages hedge funds of the kind that can profit even from falling equity markets, went in the other direction. It was 4p better at 1,304p on news it is attracting new money to manage and will grow earnings 40 per cent this year.
There was also weakness in the heavyweight banks, with rumours of a big bad debt provision at Barclays doing the rounds, sending that stock down 6.25p to 461.75p. Lloyds TSB was 9.25p weaker at 413.75p despite a broker upgrade and talk that Australia’s ANZ is readying a pounds 2.2bn bid for its New Zealand arm.
Of the mid-caps, Corus came off worse as investors worried that it may not find a way out of its financial troubles, with the steel price moving against it. Its shares melted 3p to 20.25p.
So what did go up? Defensive stocks, in the main, companies that carry on regardless of the economic weather. Tesco, the clear winner from the Competition Commission ruling on the supermarket industry, was up 1.5p at 241p. Imperial Tobacco and British American Tobacco puffed up 8p to 981p and 3.5p to 646.5p respectively. And Shire Pharmaceuticals, which makes a drug for hyperactive children, was the best FTSE 100 performer, up 4.75p at 436p.
The little construction group GallifordTry admitted that – as reported here yesterday – ROK Property Services has made a merger approach. The cash and shares approach was pitched at 51p for each GallifordTry share, but was rejected for “significantly undervaluing” the company. GallifordTry shares jumped 6.5p to 45.75p on the revelations, while ROK was off 10p at 246p. Redrow, the little housebuilder which has also been the subject of takeover rumours, was up a penny at 338.5p as fund managers toured its frames factory in Derbyshire.
RMC was a penny better at 596p on speculation that Germany’s Heidelberg is readymixing a bid for the cement group’s troubled German division. Newspaper reports from Berlin suggest employees at the division have already been informed.
All sorts of rumours surrounded Newcastle United, whose shares were down another 2.5p to 30.5p yesterday. The company was forced to deny speculation that Sir Bobby Robson had quit as manager. Meanwhile, Manchester United shares were off 4p at 196p as investors banked recent profits, despite record financial results for the club.
Tissue Science Laboratories was up 2.5p to 88.5p. The US giant Zimmer is to distribute its pigskin product for repairing ripped shoulders. And Winchester Entertainment was up 2.5p to 31p on hopes recent films starring Kevin Costner and Billy Connolly have done well.
Stephen Foley
