Tonight:
5°c
The stock market yesterday suffered its biggest one-day fall since the crash of October 1987, but that record is unlikely to last very long.
Volumes of shares traded are low because most people are cowering under the sheets waiting for the thunder to cease. A shortage of natural buyers and sellers makes things even more volatile than they would otherwise be at a time when there is much to be volatile about.
Hopes of an early return to stability are undermined because at the very point when markets are crying out for a co-ordinated political response that will get ahead of developments in the financial meltdown rather than reacting to them, we are heading into a political vacuum.
Just at the point when the US administration is beginning to show a bit of backbone, its time is running out. The US election is just a month away and, as Clifford Chance's Simon Gleeson pointed out at a seminar yesterday, it will take at least two months for the new administration to get up to speed.
At the same time, the European Union is heading into political limbo, with elections scheduled for the European Parliament, and the replacement of the current crop of commissioners by new portfolios with a mix of old and new faces. It is therefore even less likely that Brussels will provide the clear political commitment markets crave.
Meanwhile, the central bankers do what they can. The Bank of England's interest rate-setting monetary policy committee meets this week against a background of an astonishing change in expectations. A week ago, most economists thought there would be no change. Now the argument is about whether the cut will be a quarter or half a point. The MPC has been painted into a corner by the instability in the markets, as not to cut at all could cause still more market turmoil.
But central banking is about theatre as much as about real world influence, and perhaps it is time for a quartet rather than solo artists. A cut by the MPC acting on its own, though welcomed, would quickly be forgotten in the current market climate. What might make much more of an impact on sentiment would be a co-ordinated move to cut rates by the European Central Bank, the US Federal Reserve, the Bank of England and possibly the Bank of Japan because it would underline their determination to act together to cope with the crisis.
That's what we need, and there must be a chance that is what we will get on Thursday.
Price surges, but no collusion
Energy watchdog Ofgem yesterday published what is perhaps its most authoritative study to date on the workings of the retail energy market which its job is to supervise, and broadly speaking it is good news.
There are no cartels or collusion between suppliers to give customers a poor deal and the customers like the opportunity to shop around and play one supplier off against another.
Companies will also no doubt breathe a sigh of relief that the regulator found no evidence that they had taken advantage of rising raw material costs to put through excessive price rises.
The surge in the price of oil gas and coal has indeed led to an unprecedented spikes in the wholesale cost of electricity. The fear was that companies were too quick to pass on the increase to end customers, and too slow to cut when the wholesale price started to fall again. But the regulator found no evidence that retail customers were being exploited in this way.
However, there is also some bad news. There are apparently four million people in this country who are not connected to a gas grid and who therefore have got much less out of deregulation than the rest of us. They naturally tend to be rural customers, and there is a particularly strong concentration of them in Scotland.
According to Ofgem, they pay 14% more than most for their energy, which translates into being overcharged by some £55 a year — worth some £240 million to the industry.
The regulator wants this sorted out fast, which puts the main suppliers north of the Border — Scottish and Southern Energy and Scottish Power — in an uncomfortable spotlight. The former's share price fell sharply yesterday as the market digested the implications and seemed to be saying that at first glance there was not much the company could do short of finding some way to give its customers a better deal.
We shall see. However, I wonder what they make of British regulation in Spain.
First Ferrovial gets taken to the cleaners by the Competition Commission following its purchase of Heathrow, and now Scottish Power's Spanish owner Iberdrola is coshed by the electricity regulator. Meanwhile, competition rules are tossed out of the window to allow another major Spanish business, Santander, to rescue Abbey, Alliance & Leicester and Bradford & Bingley.
