MARKET ACTIVITY - JANUARY
Rosemary Langley, private banking manager at Lloyds TSB in Cambridge, looks back at the month s stock market activity THE performance of the UK economy last year wasn t exactly sparkling but, already, things seem to be looking up. The year got off to a
Rosemary Langley, private banking manager at Lloyds TSB in Cambridge, looks back at the month's stock market activity
THE performance of the UK economy last year wasn't exactly sparkling but, already, things seem to be looking up.
The year got off to a good start with the FTSE 100 Index up around 3% in January propelled by the continuing strength in energy and raw material prices as well as ongoing corporate activity.
The mining sector was the star performer, up a further 10% as metal prices recorded new highs, in expectation of continuing strong demand. The oil and gas sector also performed well rising 9% as the price of crude moved back up towards earlier highs on concerns over a possible confrontation with Iran.
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On the flip side, the telecommunications sector suffered in the wake of several profit warnings. Pharmaceuticals also underperformed, down 2%, not helped by renewed US dollar weakness. Other parts of the market to suffer included the retailers where trading updates covering the Christmas and New Year sales period were a mixed bunch and, despite the strong official figures, the market remains wary of this area.
The market again received considerable support from merger and acquisition activity, both real and imagined. The gas and chemicals group BOC received an approach from its German rival Linde, while a bidding war for ports operator P&O developed. Consolidation in the steel industry also gave steelmaker Corus a boost.
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In general, the UK economy appears to be building in strength. GDP grew by a better than expected 0.6% over the final quarter of 2005, to stand 1.7% higher than a year earlier. At the same time, although the oil price is moving higher, the official inflation figures continue to fall, hitting the 2.0% central target in December. But the Bank of England's Monetary Policy Committee is not yet convinced that higher energy costs will not lead to a more widespread increase in consumer prices. It therefore maintained interest rates at 4.50% in January.
Globally, most world stock markets began 2006 in fine form, only to fall sharply before recovering once more. At the end of January, the FTSE World ex-UK index finished January with gains of around 3%.
The mid-month stumble originated in Japan where news of dubious practices at the internet group Livedoor sent the market into a tailspin. But share prices recovered quickly helped by further positive economic indicators and renewed US dollar weaknesses. The Nikkei 225 stock average closed the month up 3%.