Afternoon:
9°c
London shares ran out of steam late on Friday after a hectic week that saw rising talk that the recession is over and that company profits will soon return to health.
The FTSE index of the 100 top shares was heading for its third “up” day on the trot when Wall Street opened for business and fell, immediately affecting prices across the pond.
By late afternoon the FTSE had slipped 55.90 points to 4699 — but that's still up on the start of week and at the highest level since October. The Dow Jones lost 135.58 points to 9262.61.
Some investors are now nervously awaiting to see if the shares can hang onto recent gains when September — often a bad month for stocks — arrives.
The bears in the City say that recent strong corporate earnings merely reflect cost-cutting rather than rising demand for products and that once unemployment takes its toll on the economy, the stock market will run out of steam.
Yesterday, Goldman Sachs' influential chief economist Jim O'Neill claimed the UK had pulled out of recession in June.
Today, Goldman's top rival JPMorgan was also optimistic.
James Glassman, the bank's senior economist in New York, is arguing that the worst recession since the 1930s has created a reservoir of demand that will soon buoy the economy.
He said: “Whenever we have plunged off a cliff and fallen into a deep hole in the past, for a while the economy has a tendency to bounce back very quickly.”
Glassman reckons that forecasts of US economic growth of between 3% and 4% in the next few quarters could be too low given “pent-up” consumer demand.
If that feeds through to the UK, third-quarter earnings figures should give further impetus to shares, say traders.
Further green shoots came with housing construction showing a “sharp improvement” in the second quarter of the year in a further sign that pain in the sector is easing.
Overall construction continued to decline between April and June although at a slower rate than in the previous quarter, according to the Royal Institution of Chartered Surveyors (RICS).
And the number of homes repossessed in the UK fell 10% in the second quarter of the year compared with the previous three months, lenders say.
The 11,400 homes repossessed was still a rise of 14% compared on the same period the previous year, said the Council of Mortgage Lenders. The number of home loans with arrears of more than 2.5% of the mortgage balance in the second quarter of 2009 was 205,600.
That compares with 203,900 at the end of the first quarter, and 139,700 at the end of the second quarter of 2008. David Buik at BGC Partners predicts the stockmarket will be comfortably above 5,000 come Christmas, but expects it to slip next month before rallying again in December.
He said: “The markets are overcompensating for what happened last year, though volumes have been light. September is usually the worst trading month in the year, and there will probably be a correction then.”
France and Germany saw their economies grow, slightly, in the second quarter, it emerged yesterday.
Reader views (4)
I reckon Keith has a cardboard cutout of Gordon Brown in his bedroom. Keith, can you please confirm?
- Artfuldoger128, london, 14/08/2009 21:15
Report abuse
Unemployment is a lagging indicator, the markets lead the real world by at least 18 months. The real test will be when interest rates start to ratchet up over the same time frame. In reality the market already sees rates at c.4.65% for fixed mortgage rates on good credits and this could move even higher to around the 5.5% or even 6% mark. Credit will continue to be rationed as banks rebuild their balance sheets in the face of continued credit card and personal loan defaults caused by rising unemployment. Gordon Brown has nothing to chirp about, he is responsible for creating this mess and can hardly now claim hero status as taxpayers bail out the mess. He certainly will not see his pension destroyed, lose his home or suffer any reduction in lifestyle. Blair earns how much after leaving office? Million $$$$$ !@
- James Macleod Ritchie, Oyster Bay Cove, 14/08/2009 16:01
Report abuse
I say well done Gordon Brown for rescuing the country from the worldwide economic recession, which has hit many other countries far harder than it has us here in the UK
- Keith Price, Luton England, 14/08/2009 15:00
Report abuse
The upwards surge of share prices seems be keeping pace nicely with the unemployment figures. Can anyone smell a big double-dip coming over the hill?
- Ted, London, 14/08/2009 11:12
Report abuse
