International Markets - London: Power drain for footsie

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The Independent Online
THE FT-SE 100 was little changed last week, rising 0.27 per cent. National Power, the largest power generator, was among the leading percentage decliners, falling 7.2 per cent since Friday, while Glaxo contributed the most to the index's decliners.

National Power said on 3 March that increasing competition in the electricity market will slice pounds 130m off 1999 profits. Meanwhile, the FT-SE Engineering Index led gainers, rising 5.6 per cent on the week after BTR said second- half net income rose 9.7 per cent.

Some of Britain's largest companies are reporting earnings this week, including the Mirror Group, BBA Group, Schroders, BAT Industries and Orange plc, the mobile phone group. Legal & General Group and Reckitt & Colman will also release profit figures.

Gilts are expected to be little changed this week as encouraging economic reports are offset by caution before the Budget, on 17 March.

The key reports due this week are industrial and manufacturing production in January, and producer price inflation, all due on Monday. Output is expected to remain weak and PPI inflation benign. Wednesday sees the release of the minutes of the Bank of England's monetary policy committee meeting in February, at which rates were left unchanged.

"There are conflicting factors at work in the week ahead," said Andre de Silva, bond strategist at ING Baring Securities, who is advising clients to hold existing gilt positions. "The economic data and MPC minutes will be bond-friendly, but I'd expect pre-Budget nerves will take over by the end of the week."

While analysts expect Brown will be fiscally prudent, gilt yields typically rise before the budget speech as traders and investors aren't willing to hold big positions, de Silva said.

On Friday, gilts rose as US Treasuries rallied, even after a report showed unemployment fall more than expected last month in the world's largest economy.

The benchmark 7.25 per cent 10-year UK government bond rose 5/32, pushing its yield down two basis points to 6.04 per cent.

Some investors said it was too early to say whether Thursday's decision by the Bank of England to leave interest rates unchanged at 7.25 per cent signalled the peak in official interest rates.

"I think it would be premature to say rates have definitely peaked here," said Peter Price, head of global fixed-income at Hill Samuel Asset Management. "There's still a risk of one more quarter-point rise if the bank feels it necessary, though I would say that I don't believe it would be warranted."

Mr Price said that he felt the economy was beginning to slow and would continue to do so as the effect of last year's five quarter-point increases in rates started to be felt.

Still, a further acceleration in wage growth or unexpectedly strong retail sales figures in coming months might be enough to cause the Bank to increase rates again, he said. Any talk that rates will climb again will limit stocks' gains.