The bulls and the bears fight it out in a bewildered marketplace

Stock Market Week

The yawning gap between the bulls and the bears seems to be widening. It does, of course, take many views to make a market - any market - but the differing advice coming from stock market strategists must make the average investor blink in bewilderment.

Last week's display suggested that the decoupling from New York was growing more pronounced with Footsie remaining within hailing distance of its peak and the supporting FT-SE 250 index resolutely striding to new peaks, crossing 4,400 points for the first time.

This week's results do not feature many big guns and are, therefore, unlikely to have much impact on the direction of the market.

Government figures, including industrial production and inflation, could have a much greater influence; so could interest rates.

Deutsche Morgan Grenfell think the improving inflation background should be underlined by falls in producer and retail prices but a significant PSBR overshoot could off-set any relief.

Although US interest rates seem destined to move higher there is still a strong possibility the Bundesbank, meeting on Thursday, could feel obliged to lower rates to encourage the faltering German economy.

At the moment the guessing is that UK rates will remain unchanged but it is worth noting that the futures market is pointing to 8 per cent base rates by the end of next year.

Political considerations loom large although even if the Tory majority evaporates, the market is taking the view that John Major will hang on as long as he can, probably going to the polls in next spring. As Simon Briscoe at Nikko, the Japanese investment house, says:

"The loss of a parliamentary majority will not necessarily lead to the fall of the Government. The economy will be a key part of the election campaign and Major will want to deliver tax cuts (detailed in the November Budget and paid in April next year) before the election."

Shares have made a confident start to the second quarter although Government stocks remain depressed. Richard Jeffrey at Charterhouse Tilney believes the current quarter will be the most active of the year.

With institutional cash flow remaining healthy and company profit forecasts being raised he believes there is a strong possibility Footsie could hit 4,000.

"In the short term, Wall Street may remain a hindrance but any resulting weakness in the UK would provide an attractive opportunity to raise weightings", he says.

His year-end Footsie target is 4,000, with 4,400 pencilled in for 1997.

Paul Walton and Edmund Shing, economists at Goldman Sachs, the US house, are on a different wavelength. They believe Footsie will not move into new high ground "for a long time". Shares, they say, are "busy going nowhere" and suggest a year-end Footsie level of 3,400; they also expect a similar figure in the middle of next year.

The rather thin list of results this week is dominated by retailers with Tesco, reporting tomorrow, holding centre stage.

The superstores group should manage year's figures of pounds 677m, a 14 per cent gain. But as NatWest Securities point out, a three-year revival, that has seen Tesco out-retailing its arch rival J Sainsbury and attaining a double digit earnings- per-share growth, could be over.

"Prospects now appear significantly more pedestrian", say NatWest men Tony MacNeary and Mike Dennis.

Like other analysts they lowered their Tesco profit forecasts earlier this year. The fierce supermarket price war, with Sainsbury fighting back, has put intense pressure on margins.

Laura Ashley, the quintessentially English clothing and furnishing chain is being reshaped and restored by American Ann Iverson who made her reputation at Storehouse.

Its shares have already responded to what appears to be her sure touch and are riding around their 12 month high. At 157p they are discounting much of any revival; indeed they are looking two years ahead.

So this week's results will be looked at as a further indication whether the Iverson magic is working. Anything short of profits of pounds 7m, an 84 per cent advance on the previous year, will be regarded as disappointing.

John Coleman, new chief executive of struggling House of Fraser, will not have to explain the department stores dismal performance. He does not get his feet under the desk until later this month so should be no more than an interested onlooker when results are announced on Thursday. However, the figures will underline the scale of the task he faces.

The market is well prepared for a profit slump. Around pounds 16m is the figure most are expecting - a ragged retreat from the pounds 36.5m achieved in the previous year.

The appointment of Mr Coleman disappointed the market; it had expected a much more well known retailer. Restoring House of Fraser's fortunes will be difficult and he will find meeting the pounds 32m projections for the current year a demanding task.

Tie Rack, the successful niche retailer, is likely to produce profits of pounds 8.1m against pounds 7.4m, with its associate French company proving something of a drag. Other retailers to the fore this week include Signet, which could have more information about disposals on Wednesday, and ERA, the cameras and toys chain, which could produce profits of pounds 1.8m on Thursday.

RMC is the other big player to report this week. It has suffered from the German economic downturn but foreign exchange movements could compensate for what at best will be flat German contribution.

It should produce profits of pounds 321m against pounds 283.3m on Thursday. The shares are below the 1,140p hit last year despite Friday's jump.

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