*** FTSE down, gilts down...just like Shell's tax bill...
*** Big news for the City...are consumers still spending?
*** Commercial property...Gordon Brown's sums...trade of the day - sell Diageo...and more...
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- Big news for the City today. The boys in the cutaway collars are hoping for a clue about what UK consumers are doing...and whether they're spending regardless of rising inflation.
- According to a poll by Reuters, most analysts expect today's figures to show a 0.4% rise in retail spending last month, after February's dismal 0.2% gain. But investors still sold the Retail sector 0.6% lower on Wednesday - the same dip the FTSE100 suffered, as it fell back after bouncing on Tuesday.
- London's index of the top 100 shares closed 33 points lower at 4,822. Volume was middling. Barely a third of the blue chips managed to avoid losing value. Ex-dividends weighed, with BAE Systems, ITV, Old Mutual and Tesco all paying out - and losing - 2% or more. Dog of the day was Prudential, the insurance giant. More on that in a moment.
- Back in the shopping malls, and yesteryear's clothes store Next lost 1.3% on Wednesday to £15.24...Argos-owners GUS lost 1.2% to £8.21...and Dixons slipped 0.5% to £1.45, despite Deutsche Bank raising its price target to £1.65. The bank's analysts think 'UK retail remains a sold business and European profits are growing fast.'
- But let's hope UK retail sales aren't growing too fast! Following Tuesday's inflation surprise, any jump in today's numbers could send UK interest rates higher...
- Yesterday brought rising oil prices - up towards $51 per barrel in London - plus news that the Bank of England crept towards raising interest rates when it met to decide them earlier this month. The nine members of the Monetary Policy Committee voted 7-2 to stick at 4.75%...one extra 'black ball' compared to the conclave in March.
- In the meantime, US inflation has also picked up, rising 0.6% in March from a month earlier. '[This] will help to shift interest rate expectations higher once again following a couple of softer activity numbers,' reckons James Knightley at ING Financial Markets.
- Of course, fixed-income bonds offer no defence against inflation, but they hate rising interest rates still more. Thus the City finally got round to selling those gilts it keeps buying on Wednesday. The price of two-year UK gilts fell, pushing yields 3 clicks higher to 4.59%. Ten-year gilts also lost money, sending the yield most closely linked to mortgage rates on the High Street higher.
- But at 4.61%, 10-year yields are still a long way below base rate...for the moment.
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- Elsewhere in the business pages today, Abbey National says it will sell £1.2bn worth of its commercial property portfolio - not a good signal for that over-hyped market...the BBC has started a rumour saying production of MG Rover cars may continue in China when Longbridge shuts down...and the National Association of Estate Agents looks to have messed up its sums.
- The NAEA claims the number of first-time home buyers DOUBLED last month. Why? Gordon Brown tinkering with stamp duty, that's why, said a spokesman.
- Even less plausible, Dear Prudence reckons he will indeed hit his borrowing targets for 2004/05, the first time he's managed to spend just what he planned. Government borrowing last tax-year came in at £34.5bn, said the ONS yesterday, down £1.3bn from 2003/04. Tax receipts rose £1.6bn, too.
- But little-noticed by most pundits or MPs, corporate tax receipts could plunge in 2005/06. Private Eye notes Marks & Spencers' victory in the European courts - giving it the right to offset non-UK losses against its UK tax bill. Now, the Eye reckons, firms including Asda, BT, Lloyds TSB and Shell may seek a 'group litigation order' to cut their tax bills, too.
- What's more, Royal-Dutch Shell - one of the FTSE All-Share's biggest equities - has just transferred its registered office to Holland, potentially saving billions in tax. The move comes as part of Shell's 're-organisation' following last winter's scandal over its proven oil reserves.
- Not that investors have spotted Shell's tax windfall rise yet. The stock slid 0.7% to £4.68 on Wednesday, while the broader Oil & Gas sector dropped just 0.2%. Cairn Energy rebounded 2.3% to £11.79...Burren rose 2% to £5.09...and penny stock minnow Caspian Holdings shot up 8p to 42 pence.
- Over in the financial sector, and the UK's second-biggest bank, Royal Bank of Scotland, reported 2004 profits rose 15%; the shares lost 0.8% to £16.06. Prudential investors also lost money, as the share dropped 3.6% to £4.85, even as the insurance giant said it grown sales 11% in the first three months ofthe year!
- Trouble was, the Pru's growth was merely 'in line' with what City brokers expected. Altogether, the Life Assurance sector closed fully 2.3% lower, with fellow UK insurer Aviva losing 14p to £6.01. Worse still for Prudential, France's AXA Insurance dropped hints it won't make a bid...the kiss of death to many a bull run in today's merger-fixated market.
- But one takeover came good, after the market had closed. Allied Domecq will be sold to Pernod Ricard, the FT reports, in a deal worth £7.4bn in stocks and cash. It combines the world's second and third-largest spirits makers to create a company to rival the market leader, Diageo.
- Pernod's bid values Allied at £6.70, a long way north of yesterday's close at £6.43...and not far below where Diageo might open today, and even nearer where it might end by hometime tonight.
- Tomorrow your regular correspondent, Heather D'Alton will return with a tan as well as the news you need to brave the markets once more.
Until then, this has been - and remains, strangely enough...
Adrian Asfor Money Morning
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