View more on these topics

Money Marketing Markets: FTSE rebounds after third worst month on record

As January goes so goes the year, according to the cliché, but investors will be praying that it does not come true.

The FTSE 100 ended January 9 per cent down- its third worst ever monthly performance and only surpassed in the deep bear markets of 2000 and 2003.
Does that mean we are in a bear market now? Despite a raft of bad news, the market is actually ending the week having pushed through the 6,000 barrier before slipping back after a 103 point rally by mid-afternoon today.
That barely looked possible on Thursday morning after growing concerns about the state of the US economy and further twists in the credit crunch saga sparked panic. The blue chip index was down 150 points at one stage before rallying to close up 42.5 points at 5879.8. That saved the month being the worst ever on record.
Banks bore the brunt of the bearish sentiment as rumours of a further massive write-down at UBS then Japanese bank Mizuho announcing a $4.2bn sub-prime write-off resulted in a financials sell-off.
Barclays, HBOS and Royal Bank of Scotland all slumped by over 10 per cent in the morning before positive noises from US monoline insurer MBIA triggered the rally.
The perceived shakiness of the monoline insurers continues to be a dark cloud, however. Despite MBIA’s reassurances, municipal bonds are trading on credit spreads that imply the insurance provided by the monoline giants is worthless.
The gloom for the financial sector looks set to continue.
Roger Noddings, chief investment officer at HSBC Investments, says with banks at multi-year lows an awful lot of bad news is priced in already but the near-constant poor news flow and lack of clarity about their exposure to sub-prime keeps holding the sector down.
The US has once again dominated the news this week.
The Fed cut interest rates by 50 basis points mid-week to no-one’s surprise- 86 per cent of analysts called the move with the other 14 per cent opting for a 25 point cut.
Noddings says the markets reaction was largely muted as the move had been so widely telegraphed.
“The market rallied ahead of the announcement and faded after it,” he says. “The 75 basis point mid-meeting cut did have a big impact but it was unfortunate it happened in the middle of the unwinding of the SocGen trades.”
The rate cut has helped drive the sectoral shift toward interest rate sensitive stocks, says Standard Life Investments global investment strategist Richard Batty.
Kingfisher and Next were both up more than 8 per cent over the week, benefiting from this trend.
Batty also points to industrial cyclicals as winners over the week, albeit bouncing from very low levels.
Manufacturing is not looking so hot though. The Purchasing Managers Indices in both the UK and China were weaker than expected in January.
This was compounded by weak US GDP data, which only came in at 0.6 per cent annualised for quarter four.
“The economy has essentially stagnated,” says Batty. “The questions are how severe will the US slowdown be and how will it affect the rest of the world?”
Batty adds further bad news from the US housing market completed the week’s macro doom and gloom. The Case-Shiller US national house price index fell by 8 per cent revealing that house price falls over the pond are actually accelerating.
The Fed’s statement that it wants to “underpin financial markets” may well be tested sooner rather than later if the latest round of rate cuts do not filter through in the next few months.
Back in blighty, Shell reached for the record books after posting a staggering $27bn profit, smashing European records. Not all that glisters is gold, or even black in this case, however. The numbers mask a fifth consecutive year of rising capital expenditure and falling production. The oil companies are having to spend more to get less oil out of less accessible places and in increasingly volatile countries.
Not that the unions were too sympathetic.
Commodities had a rollercoaster week all round, buffeted by the weak macro data, South African power failures and heightened bid talk.
But feverish speculation on Friday that BHP Billiton would renew its bid for Rio Tinto helped the latter up 13 per cent on Friday and 20 per cent for the week. BHP has added 13 per cent and Xstrata 12 per cent on consolidation rumours.
Elsewhere, we could be set for a job merry-go-round in the financials sector. Friends Provident’s retrenchment from several product lines is likely to see 600 jobs slashed. On a more positive note, LV is aiming to recruit 100 a year to drive its push to become a top five insurer. Anyone fancy a move to Bournemouth?


Modest drop in house prices for January

House prices fell in January by a modest 0.1 per cent according to Nationwide’s house price index.This is the third month running that house prices have decreased. The annual rate of house price inflation slipped in January from 4.8 per cent to 4.2 per cent and the average price is now £180,473 down from £182,080 […]

‘RDR must consider role of solicitors’

Sifa managing director Ian Muirhead is calling on the FSA to consider the Legal Services Act 2007 and its implications for advisers as part of the retail distribution review.Under the act, which is set to come into force in 2012-13, solicitors will be able to form alternative business structures combining other professions such as IFAs […]

Half of Co-op pension clients opt for ethical fund choice

Co-operative Insurance says around half of its new pension investors are putting money into ethical funds.Figures reveal 47 per cent of new CIS personal pension customers are investing in funds that invest in ethical companies. The statistics show men are 17 per cent more ethically motivated than women when arranging their pension investments. The average […]

Matthews quits Standard for Friends

Standard Life head of UK retail Trevor Matthews has quit to join Friends Provident as group chief executive.Matthews joined Standard in 2004 as life and pensions chief executive, leading the dramatic restructure of the firm’s life and pensions business. He was a front-runner to replace Sandy Crombie as chief executive when he stands down. Crombie […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm