Stock Markets - the week Iin view: Safety first in pre-election lethargy

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The Independent Online
Voter apathy about the general election may spill over into the stock market this week as investors see little reason for jumping headlong into purchases ahead of polling day.

"We're in for a dull couple of weeks of very light trading," said John Parrot, head of research at Commercial Union Asset Management.

Two noteworthy events this week will be the start of trading in Alliance & Leicester, the first building society to convert to a bank this year, and Friday's report on economic growth for the first three months of this year.

Lethargy has already set in. Trading on the London Stock Exchange declined 19 per cent last week from the past three months' daily average of 900 million shares.

Trading is likely to be volatile as market makers dig deep into inventory to fill orders. Stocks are set to fall, as investors factor in a post- election interest rate increase, and its dampening effect on equities.

"The UK has multiple problems of rising interest rates, a strong currency and a maturing earnings momentum," said Roger Monson, equity strategist at Daiwa Europe.

Mike Butler, a trader at Panmure Gordon, said that if Labour wins, stocks could weaken on questions about the party's commitment to privatisation and market reforms.

Alliance & Leicester will begin trading on Monday, with analysts' estimates of the share price varying wildly.

London market makers said on Friday that the shares were trading at 512p on the grey market, above expectations. That's good news for the other banks and mortgage lenders, such as Lloyd's TSB.

"In terms of both ratings and demand, it's good for the other stocks," said Mr Parrot. "There will be some institutions that will not be able to buy as many shares as they want and they'll need to buy the alternatives."

The flotation of four building societies this year is expected to create a body of shares worth about pounds 20bn.

British Petroleum shareholders will stay alert for earnings reports from Exxon and other oil marketers starting tomorrow. Net income for oil companies is expected to rise about 10 per cent on average, according to analysts, thanks in part to higher crude prices, which reached $24.56 a barrel in early January.

Oil has since fallen below $20 a barrel, and investors will be listening for cautious remarks about the outlook.

Copyright: IOS & Bloomberg