Major volatility with some of the biggest moves for five years this week
25/03/2008
17th March - Another black Monday after Bear Stearns is rescued Over the weekend, JP Morgan effectively rescued Bear Stearns, paying only $2 per share, which was less than a tenth of its market value on Friday, and this has sent jitters around world markets as it signals how badly the financials have been affected by the credit crunch. By mid-morning today the FTSE 100 index was down 150 points sending it towards the panic lows seen in January and falls in the banking sector averaged around 10%.
No doubt there will be more volatility as traders eagerly await forthcoming statements from Goldman Sachs and Lehman Bros this week, so we have to say that despite the highest yields in the sector for many years, the UK banks still look very shaky in the short term.
It's not just the financials that are weak though and today Wolseley saw yet another 6% off its shares after it revealed a big fall in half year profits, reflecting the deteriorating US housing market and weak consumer confidence due to global credit restrictions. There have been several broker downgrades recently and although the shares are 60% off their highs, there is no room for sentiment here and they could certainly go lower.
In the interest of balance, there is a little good news around, and bucking the market today is British Energy with a 12% gain after it said that it was in talks with interested parties that could lead to a business combination or an offer for the group. Buy on a bid? Possibly, but when there is a market rout everything gets sold off, so the key here is to be nimble through today's session as this could be a smart purchase into weakness.
18th March - Footsie back from the brink after yesterday's big falls It was a tumultuous session yesterday with widespread falls led by the financials after the weekend Bear Stearns news. We do however have a pause for breath today ahead of the crucial statements at lunchtime from Goldman Sachs and Lehman Bros, not to mention what the Federal Reserve decides to announce on interest rates.
Not surprisingly with many dividend yields on the banks now in excess of 10%, value investors have been sniffing around and we have seen tentative rallies in the likes of HSBC, RBOS and Barclays, together with rebounds in Icap and Man Group. These latter two groups were hammered yesterday after a string of failures in the asset management world, but so far their trading activity and profits appear to have held up well.
Elsewhere, there was a trickle of results today, with no great shakes, but the one to watch is Legal and General which saw profits fall more than expected in 2007 after a £269m pre-tax charge to account for longer UK life expectancies. With a fairly cautious accompanying statement, there seems little chance of the shares drastically outperforming the market in coming months, but on a longer term view there should be some value there.
19th March - More seesaw action as bulls and bears fight it out Yesterday saw a dramatic reversal in world markets with the Dow Jones seeing its best day in over five years. The FTSE 100 index saw almost a 200 point rise, and this sort of action is often the hallmark of a turning point, but the bears may still have some energy.
Today we have seen an early mark up wiped out by another wave of selling on what has been a very busy day for corporate news. To be fair, the statements have generally been good, with the understandable air of caution offset by fairly good earnings growth. Icap, Smiths industries and Aegis for instance all sounded upbeat within the economic background, and each one gapped up only to see selling into strength. No doubt these are the types of stocks that would normally race away in more normal market conditions.
At the bottom end, things do not look so good in the travel world for Easyjet and Hogg Robinson, both of which suggested lower guidance on fuel costs and overall demand. In these markets, the shorts could have another field day here with these types of profit warnings, and it makes one wonder what we will soon hear from British airways and Ryanair.
20th March - Commodity stocks hit hard overnight and this morning There was a sharp reversal in commodity prices around the world yesterday and it could be that the long term bull market in mining stocks is at an end after gold saw a huge drop of almost $60 overnight. This has had a big impact on the FTSE 100 index so far, with Vedanta and Anglo American down around 5% and the other blue chip miners not far behind.
Aside from that, traders have seen mixed action with the index down around 50 points, and all eyes have been on HBOS, which saw a wave of selling yesterday before clawing back the losses after the FSA threatened action on false rumours and short selling. Today the shares have settled down around unchanged, but volume is high and it will be interesting to see whether all this is a final panic low, which could certainly be the case.
Elsewhere, the resignation of chairman Brian McGowan and chief executive Doug Flynn at Rentokil came as a surprise to some, but given the series of recent profit warnings and share price collapse over the last year, action clearly needed to be taken. The response by the market has been to mark the shares up a hefty 17%, but we would caution about being carried away. This smacks of the initial reaction to last year's changes at ITV, and it might take more than simply a boardroom change to sort out the structural problems here.
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