Britain's stock market, which reached five-year highs during the first quarter on strong earnings and take-over activity, will turn its attention next week to the Bank of England's latest decision on interest rates.
On Friday, London's FTSE 100 index of leading shares ended the week at 5,964.6 points - a fall of 1.19 percent or 71.7 points from the previous week.
Friday marked the end of the financial year's first quarter, during which the FTSE 100 climbed above 6,000 points for the first time in five years. The Bank of England was expected next Thursday to keep British interest rates at 4.50 percent, where they have stood since August. The European Central Bank was expected also to hold eurozone borrowing costs at 2.50 percent.
On Tuesday, the US Federal Reserve decided as expected to raise its benchmark Federal funds rate by a quarter-point to 4.75 percent, the highest level in five years.
Rises to interest rates "could be a bit of an inhibiting influence (for investors) in the very short term", said Mike Lenhoff, chief strategist at Brewin Dolphin Securities. "It's not a problem in the UK for a while, but in the US interest rates are nearing 5.00 percent... and if they have to go considerably beyond that, that will influence sentiment globally."
The British stock market and its rivals across the globe have in recent weeks been lifted to multi-year high points on strong company earnings, as well as take-over bids and speculation.
"The reason we have got all this corporate activity is that valuations are so good, (and) the cost of borrowing is cheap relative to valuations," said Lenhoff, who in January had forecast the FTSE to be at 6,100 points at the end of 2006.
Despite the FTSE reaching already this year a high of 6,044.00 points, he ruled out altering his year-end prediction. "I think I am going to leave it for a while. The market has had such a good run, it wouldn't surprise me if we get a period of consolidation."
The FTSE was weighed down this week in part owing to the abandonment of a number of take-over bids worth billions of pounds (euros, dollars).
ITV, the biggest British commercial television network, closed down 4.60 percent at 119.25 pence on Friday after rejecting an improved offer from a consortium comprising the private equity groups Apax and Blackstone and the US investment bank Goldman Sachs.
The new bid had valued ITV at about 5.3 billion pounds (7.6 billion euros, 9.2 billion dollars). ITV had on March 22 rejected an initial bid by the consortium worth about 4.9 billion pounds. The consortium said Friday that it would not make a third bid.
On Thursday, the price of shares in the London Stock Exchange closed down more than 6.0 percent after the Nasdaq electronic stock exchange dropped its bid for the LSE, Europe's biggest equities market.
The LSE, which closed up 1.20 percent at 1,056.0 pence on Friday, had rejected on March 10 a preliminary bid worth 950 pence-per-share from the Nasdaq, which valued its British rival at about 2.42 billion pounds. Also on Thursday, Associated British Ports, the biggest port operator in Britain, turned down a take-over proposal worth 2.23 billion pounds by a consortium that included the Singapore government and Goldman Sachs. The consortium did not say whether it would bid again.
A week ago Aviva, the biggest insurer in Britain, abandoned a takeover bid for Prudential that valued its rival at 17.2 billion pounds.
Following the abandonments, Lenhoff questioned whether the bidders were "really, really determined (to buy) or just trying to be a bit opportunistic and see where it got them". He added: "Relative to what we've had, these withdrawals are really a small proportion of what really has been going on and is unlikely to have much of an impact. It may affect sentiment for a day or two, but I don't really think it is a sign of a trend to come."
Comments
Comments are closed.