Footsie ploughs on upward — but how long can it last?

Since hitting 4127.17 points on 10 July, the FTSE 100 index has risen by 11.3%, including a gain of 33.64 points today to 4593.44. Put another way, the stock market value of leading shares has grown by more than £11 billion for each of the last 10 days. The concern voiced by economists following worse-than-expected GDP figures barely registered on the stock market.

London is now but one day away from matching the record 11-day rally enjoyed at the end of 2003 and in the first days of 2004. But with low volumes and summer holidays looming, the rally's sustainability is increasingly under question. Richard Hunter, head of UK equities at broker Hargreaves Lansdown, said: "After what we have been through in the last 18 months, the market is very concerned about getting ahead of itself."

Although comfortably clear of the 3500 floor almost breached in March, the FTSE has only returned to its levels of the beginning of this year. It remains 31% lower than its 2007 peak.
While miners and oil companies dominated the FTSE leader board, there was no room for Anglo American after its diamond division De Beers revealed that profits plunged 99% to $3 million (£1.8 million) in the first half.

Anglo American, down 21p to 1918p, owns 45% of De Beers, with the remainder in the hands of the Oppenheimer family and the government of Botswana. Last year, the diamond division delivered £256 million in profits to Anglo.

A shock profit warning from French flag carrier Air France spooked the UK-based airlines. British Airways was off 1.2p at 137.3p while easyJet slipped 1.5p to 284p. In Dublin, Ryanair slid nine cents to 3.35.

As the UK opens its first emergency flu drug distribution centre, analysts are trying to predict winners and losers. Predictably, the five manufacturers of the vaccine are seen as a surefire way to minimise the financial impact the pandemic may yet create. Increased sales of the vaccine are a key reason cited by analysts at Goldman Sachs for taking GlaxoSmithKline, unchanged at 1165.5p, off their influential conviction sell list, where the company has been languishing since March, just before Mexico unleashed its virulent creation. Goldman is raising its profit forecasts for next year by 3% and by as much as 6% in the following years. Increased orders may force it to revise these.

Meanwhile, AstraZeneca, one of the five companies working on a vaccine for H1N1, climbed 27p to 2866.5p today after a spokesman at its MedImmune unit in the United States claimed that it was getting a better vaccine yield than rival manufacturers. The word from the US Food and Drug Administration is that most companies are only getting about 30% of the vaccine yield, compared with their usual production of seasonal flu strains.

Brewin Dolphin says High Street retailers and travel and leisure groups will be most exposed, although it notes this hasn't happened yet. "We feel that general sentiment at present is that the worst-case scenario will not be tested, and that the impact on corporate Britain will be limited. Therefore share prices have not been infected."

Indeed not – retailers have been one of the key beneficiaries of the recent rally. Argos owner Home Retail was today up 10¾p at 309¼p, helped by a re-rating from Citigroup, which now has the catalogue shopping group as a buy.
Bike and car-accessories group Halfords, 5.5p lower at 337.75p, continues to win fans ahead of its trading statement next Wednesday. Oriel Securities, reporting back from a meeting with management, said the business model remains naturally defensive, with room for margin gains from better sourcing.

Utilities were still reeling in the wake of yesterday's devastating ruling by the industry regulator Ofwat on water bills. Analysts at HSBC were slashing millions off their forecasts, cutting Northumbrian Water, down 5p to 240½p, to underweight from neutral and Pennon, off 23.75p to 466.75p, to neutral from overweight.

Severn Trent was down 20p at 1011p although UBS thinks now is the time to stock up, raising it to buy from neutral.

United Utilities, unchanged at 480p, said shareholders can expect a 5% rise in the dividend for 2009-10 after it reported current trading in line with expectations. It said it was reviewing Ofwat's "draft" determination.