The US is ticking away nicely. The second quarter saw an annual rate of growth of 3.3%. This was 0.5% less than in the first quarter, but 0.2% better than in the final quarter of 2000 and compares with a mere 1.5% in the UK.
BHB breaks world mining record
The good times are rolling in for mining companies. Take BHP Billiton; it’s the world’s largest miner, and puts in a regular appearance in our risers chart, in fact shares are up 47% up so far this year. Yesterday it posted the biggest annual profits ever by an Australian firm, - $6.4bn.
No prizes for guessing why: It’s China, of course. Take iron ore, for example. In the year just gone, the land beyond the Great Wall accounted for 12.6% of BHP’s iron ore market, but that’s just the beginning. It predicts Chinese demand rising to between 15% and 20% within five years.
Somerfield appeals
When Somerfield bought 115 stores from Morrison last year for £260mn, competition authorities were not impressed. The UK’s fifth largest supermarket chain was told to sell 12 stores. Now Somerfield has appealed, saying that many of the areas in question also boast a Tescos or Asda. amp;#63;
Meanwhile, the battle to own Somerfield rumbles on. On one side is the Apex consortium, consisting of British buyout firm Apax, Barclays Capital and property mogul, Robert Tchenguiz. On the other side are the property tycoons Ian and Richard Livingstone, who own the London & Regional property group. Earlier this week, the Livingstone brothers bid appeared to lose momentum, after United Co-operatives, the Rochdale-based retailer, pulled out of negotiations to buy 500 Somerfield stores from the consortium, if it was successful.
‘888′ lands on black
Maybe an investment in one of the online poker firms is only right for you if you are a regular user of their products, because it would appear, or so seems to be the wisdom on the markets, that an investment in these stocks is something of a flutter.
Yesterday, it wa ‘‘888’s turn to float. Originally the launch share price was slated for between 162p to 212p, but in the end the shares were launched at the lower end of that range, 175p. Even so, it wasn’t the most auspicious of starts with shares down 5p on the day. Still, it could have been a lot worse, at one point shares were down to 162p.
At close of play, market capitalisation was £590mn, still enough to make the company’s owners, the Israeli pair of Avi and Aharon Shaked £100mn plus from selling a quarter of their 70% stake.
The trouble with online gambling firms is that the valuations are based on an assumption of continued growth - but no one seems to know how much oomph the market has got left in the tank. As Alan Millar, an analyst at Arbuthnot Securities Ltd. in Edinburgh was quoted on Bloomberg site as saying: “Until you’ve been around for six or nine months, with a few quarters of earnings behind you, why should I take it from you that you’re going to grow faster than everyone else?”
When party gaming was floated in June, shares surged 8.1%, but then crashed later in the season, as doubts emerged on the company’s future growth - and now the share price is down by a third, and the firm’s capitalisation is £3.82bn.
There’s another big risk with investing in online gambling firms- the practice is illegal in the US, and it’s been said that the directors could risk imprisonment if they visit the country.
But, with Gibraltar the hub of the online gambling world - many of the big players are based in the same building, and London the home for their flotations, it’s left to the likes of John Anderson, ‘888’s chief executive, to act as the face of the industry. He said of the listing: “There is obviously a lot of volatility in the last few weeks but we are focused on tomorrow. Our owners have sold only 25% of the business and we are driving forwards. We are getting stuck in. You can’t control the market on a day-to-day basis, so we will concentrate on running the business.” He added: “In three to four years I don’t think you will recognise the industry. There will be a handful of big players - and customers who really trust them - and there will be a bigger pie.”
House prices: recovery gains momentum
It’s gone from a trickle to a flood. First there was RICS with its closely watched surveys of estate agents; then there was Rightmove; and then earlier this week the British Bankers Association joined the party; now both the Nationwide and the Bank of England have hailed the comeback of house prices.
Actually, at first glance, the Nationwide report seems to indicate the opposite; house prices were down 0.2%, in September, the same as August, but this time the leading mortgage lender was bullish about the future. Fionnuala Earley, group economist at Nationwide said: “Estate agents have consistently reported increased buyer interest over the last few months, which should help to support the market going forward. Rather than seeing a rapid and significant correction in house prices as predicted by some, we are more likely to see a continuing smooth slowdown as lower price inflation attracts more demand, and thus liquidity, into the market.”
The Bank of England report seemed to shed even more optimistic light on the matter. Mortgage lending, says the Bank, was up £7.6bn in August, compared with £6.5bn in July, tha’s the biggest monthly increase in over a year. As for the number of loans for house purchases- they rose to 107,000 from 99,000 in July. It’s still well below the peak of 130,000 in late 2003 - but then that was the silly season.
The Bank of England figures are significant because they seem to give a good indication of underlying changes: and often pre date changes in price.
It seems clear, this Autumn the market seems to be lifting and as a result the members of the “soft landing club” are saying “told you so”.
We don’t want to sound like a record that has got stuck but we will repeat our waning from earlier this week at this point. “There are long-term forces at work here. And as we have warned repeatedly, low inflation means it will be years before the ratio of average house prices to income returns to historical average, and that these days, inflation is no longer there in the backgroud, quietly eroding the true value of debt, meaning mortgages no longer get cheaper in real terms over time” In other words, a few good months does not spell an end to shaky foundations for the property market.
UK sees more money coming in than out
The UK benefited from a massive surge in foreign investment in 2004, with Direct Foreign investment almost quadrupling from $20bn in 2003 to $78bn last year. In all, the UK was the second most popular destination for FDI behind the US, says a new report from Unctad
Merger and acquisition activity was the main factor behind the jump - the year saw the Santander buy up of Abbey National, while the UK based Amersham was bought by General electric of US.
A curious piece of information emerged from our analysis of the Unctad figures. For the first time in many years, the UK’s investment inflows - that’s money coming in, was greater than outflows. We say curious, because as of yet none of the media seems to have picked up on this, maybe the news has broken too recently for full analysis.
The US too, saw a major leap in FDI, from $57bn in 2003 to $96bn in 2004, while China saw an increase from $54bn to $61bn.
Europe as a whole, however, saw a sharp fall in Direct Foreign Investment, down from 339bn in 2003 to 216bn in 2004.
Flows to the European Union dropped twice as much - by more than a third - to $216bn, primarily because of sharp falls in FDI in Germany, Luxembourg and the Netherlands.
But it was a happier story in Asia, where investment inflows hit an all time high - $148bn.
UK on the rails? Growth at 12 year low, retail at 22 year low.
It’s been said that one of Gordon Brown’s favourite jokes goes like this: What’s the difference between a good chancellor and a bad chancellor? Answer, it’s down to when they resign!
Okay, we grant you not the best joke ever told, but telling nevertheless. It’s been a golden run for the UK, and under Gordon has experienced its longest run of growth ever. And in fairness, no on is yet saying this run is over. There’s no talk of recession. Even so the two latest reports into UK plc make grim reading.
First, the quite bad news. According to the latest figures revealed by the Office of National Statistics yesterday, the UK grew by just 1.5% in the 12 months to the end of the second quarter. That’s the worst performance for 12 years. In the last quarter, the economy expanded by just 0.5%.
The Treasury protested loudly. A spokesman said: “We are facing the highest sustained oil price for a quarter of a century, growth in our main export market - the eurozone - has slowed and house prices have slowed to a more sustainable level . In previous years, any one of these shocks would have tipped the UK into recession. Instead employment is at a record high and the economy continues to grow every quarter - delivering a record 52 quarters of uninterrupted growth.”
But, the point is, many forecasters have been predicting such a fall for some time, and Gordon has been insisting they were wrong. And as we have said here before, there’s a feeling out there that oil is a scapegoat.
But then that brings us onto the really bad news. According to the CBI, which published its distributive trades survey yesterday, conditions on the High street are the worst for 22 years. Of the retailers questioned in its survey, 26% said sales were up, but 50% said they were down.
John Longworth, Executive Director of Asda and Chairman of the CBI’s DTS Panel, said: “There was no let up for retailers during September. Despite extended Summer sales, this is the fourth month in a row when volumes have fallen well short of last year’s levels. Margins are being squeezed further as prices are cut and fuel prices rise.
“The reluctance of consumers to spend money is probably due to a variety of factors including higher fuel bills, a reluctance to incur debt and the slowdown in the housing market. With only three months to go until Christmas retailers will be pulling out all the stops to get shoppers back into the High street and spending money.”
Roman Empire moves West
Here’s the choice? You accept around £7bn for your shares in a company you bought for £100mn ten years ago, and accept another term as governor of the remote Siberian province Chukotka, or you follow in the footsteps of Mikhail Khodorkovsky and serve time in one of Russia’s finest prisons.
No one is actually saying that the choice was that clear cut. Vladamir Putin has been insisting for some time that Roman Abramovich is safe, but there is a hint that the £7.4bn the state owned Gazprom forked out for 72.7% of Sibneft yesterday, was a tad below the true market value.
But then again, since Roman’s share in the stake sold was estimated to be around 80%, and since he will also get around £1.7bn in dividends this year, it seems unlikely he will be drowning his sorrows in vodka.
The Russian leader wants Russia to exert true influence on the world again. It might not be the super power it once was, but at least it’s got oil and gas, and with the buyout, it’s thought that Gazprom now controls around 30% of oil pumped in Russia, and 20% of the world’s gas production.
As for Roman. Earlier this year, Forbes magazine estimated his wealth at $14bn, and said at the time that “everything his hands touch turns into crisp notes.” But there seems to be some confusion as to whether the money he will make from this transaction will come on top of this estimate of wealth, or is already allowed for. The Independent, for example, said that the sell-off will catapult his wealth from the £8.3bn before the deal to £15.9bn.
Some are saying that Mr Abramovich is to sever his links with Russia now. He did after all sell his stake in Rusal, the country’s third largest aluminium producer, two years ago, and he has very few interests left in his home country.
But, on the other hand, it is thought that before agreeing the deal, Vlad impaled Roman with the task of staying in his role as governor of Chukotka for another term. He is almost as popular in the remote Russian province as he is at Stamford Bridge. The Chukotka’s know him as uncle Roman, and since he took on the governorship in 2000 has invested £730 million in local infrastructure such as schools and hospitals. To much acclaim he even paid for local schoolchildren to take holidays to the Black Sea.
So now, Roman, as one Russian analyst said, “is getting enough money to keep 15 generations of Abramoviches.” But the question fans of ‘chelski’ want answering, is this: Is it enough money to pay for 15 generations of Frank Lampards?
US consumer confidence dives
Consumer Confidence has taken a big hit in the US. The widely watched Consumer Confidence Index, published by the Conference Board fell to 86.6, from 105.5 in August; that’s the lowest level in almost two years. “Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years (81.7 in October 2003) and created a degree of uncertainty and concern about the short-term future,” says Lynn Franco, Director of The Conference Board Consumer Research Center. “Historically, shocks have had a short-term impact on consumer confidence, especially on consumers’ expectations. Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job market outlook, will likely curb both confidence and spending for the short-run. As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year-end or early 2006.”
UK could freeze this winter
Do you remember all the talk that the summer of 2005 was going to be a sizzler? There was a date in mid August, when they were saying it was going to be the hottest day ever recorded in the UK. In fact it rained that day, and it felt more like autumn. For all that, with the summer proving to have an Indian feel to it, it turned out to be a good one.
Now, the met office is warning that we are in for a cold a winter, with temperatures below average. And that’s a major problem.
For some time now, the UK has been short on gas, but the succession of mild winters meant it didn’t matter too much. But as we move from a country self sufficient in gas, to one that relies on imports, the infrastructure isn’t quite in place.
As we say, this isn’t a new problem. It was a similar story last year, with experts warning that supply might not be great enough to meet demand if there was a surge in gas usage.
Now CBI director general, Sir Digby Jones, has warned that: “If we don’t sort out our decrepit supply system, we are, this winter, going to run out of fuel.”
The CBI reckons we have a mere 11 days worth of gas in reserve, compared to 55 days in most other European countries.
“Since 2003, many local authorities have denied planning permission to build new storage capacity, and when industry has appealed those decisions and taken them to central government in Whitehall, John Prescott’s office has refused as well,” Sir Digby said. He added: “The government never seems to take the energy debate to the consumer - they take it to business all the time. We have to have a proper debate about whether we need nuclear power.”