Betfair Official Blog

Country's still in growth - just

Daily View - 2nd July 2008

A grim day on the exchanges yesterday as virtually everyone decided at the same moment that discretion was the better part of valour.

At one point in after hours dealing the FTSE was being called 200 points down on the day but a late rally in the States last night means that this morning we are likely to open on the side of the angels with the early call being for a 20 point move to the upside on the open. The Dow turned a near 200 point fall into a 30 point rally after the Europeans had done their worst, shut off their screens and gone down the pub for a pint.

We are in danger of talking ourselves into a real funk at the moment. Yes, prospects are not great but neither are they as bad as is being portrayed. Employment is still reasonably firm, the High Street is weak but, on a quick recce through the town centre last weekend, I could see no evidence of the resurgence of those ubiquitous 'charity shops' which always seem to spring up in vacant lots nor was there any evidence of 'closing down' sales in smaller retailers. The country is still in positive growth (just) and whilst most companies are not looking to increase headcount this is a long way from actually cutting. Aside from anything to do with retail, housing and banking small businesses are not going to the wall in the kind of numbers that would indicate a slump.

Times are going to get tough, no doubt, with a shrinking of discretionary spending numbers but many companies are doing very nicely. Major construction works are still on the up and there is, finally, a sense that the UK will be pushing through the major upgrades to the infrastructure that governments, of whatever hue, have avoided making decisions on for years in fear of upsetting voters. The creation of a major projects Quango, which can override local planners, with no requirement for 'Public Inquiries' has been needed for decades and will presumably push through the Nuclear, Coal, Rail, Road and Air developments that have sat on the sidelines for more than twenty years. We always ask "why does France have such great road and rail links?" the answer is that they can force through projects of national importance without reference to 'Mr & Mrs Smith of 4a Nimby Crescent' and often (gasp) without finding Great Crested Newts anywhere near the site. Gordon Brown is so unpopular now that he might as well push through the vital decisions as it is unlikely to make much difference now.

Markets this morning are likely to be slightly more positive (at least on the open) but it will take quite a lot to turn the general negative sentiment into a serious rally. The ECB is due to raise rates tomorrow which might be something of a sell the rumour buy the fact moment. If they actually do not raise rates now the effect might be the reverse as market watchers wonder what it is that they have seen that changed their minds.

The news that Taylor Wimpey was unable to get fund raising off the ground will hit sentiment. The stock looks vulnerable now to an implosion if the banks squeeze for more equity against loans outstanding on the land bank. Banks are not charities and if they are taking the risk on the value of their loans then they will probably want something of the upside when a recovery finally emerges. Shares are likely to open around 54p this morning down some 10%.

Marks and Spencer have really hit investors with a shocker and the profit warning will take value down below 300p in early action. A bit tough on the food director, Steve Esom, having to fall on his sword as his unit appears to have done better than the others. Food was always a bit of a side issue as many of the older stores were not in sites that encouraged a big spend. Sir Stuarts halo is slipping still further and his elevation to all high chief gumbo which caused such a stink a few months ago will, no doubt, be mulled over once more.

Oil is pressing the highs again this morning after Obama's policy advisor stated that Iran's nuclear ambitions were 'the biggest risk to world stability for the next decade'. Not a clever piece of statesmanship.

Gold, having broken out of the range which had it in thrall for the last few months is making up for lost time at the moment with the weak dollar once more allowing the bulls to bite back. We are now up at 940 bucks, 50 dollars above the level this time last week and beating the last rally high.