Feel of winter bites stock market


The London market had a distinct feel of winter about it yesterday. It was not merely that the FTSE 100 index fell more than 100 points - it was also that it reached a level not seen since February 16th.

Some encouraging economic data and a batch of strong corporate figures were no competition for the after-effects of the third biggest points fall by the Dow Jones Industrial Average.

The Dow's 300-point fall late on Tuesday, backed by daily volume that was the second highest ever traded, ensured that London was only ever going to head one way.

When the indicative pre-market orders had been calculated, Footsie was quoted down almost 50 points. Half an hour later, it was down almost 100 points. And by midday it was down 165.

Then, some sense of stability prevailed and, well before Wall Street opened in the afternoon, London had reached a level about 100 points below the previous close. Footsie ended a net 103.6 lower at 5,632.5, almost 9 per cent below the closing peak reached on July 20th. The FTSE 250 fell 123 to 5.321.5 and the SmallCap index fell 42.1 to 2,415.2.

Traders remained relatively unperturbed by the rout, arguing that it represented an adjustment that had to happen.

Mr Nigel Little, head of sales at Panmure Gordon, said: "When something happens that market-makers don't have time to think about is when you get big volumes.

"What happened to Wall Street was not a surprise as the current earnings growth is not enough to sustain the multiples we have seen," he said.

Nevertheless, the US move was enough to suppress the impact of some positive industrial figures from the UK. Economists had forecast a 0.2 per cent decline in June manufacturing output.

However, output actually rose 0.7 per cent month on month leaving overall second-quarter growth up 1.1 per cent, the highest gain since the third quarter of 1994.

Mr Michael Saunders, of Salomon Smith Barney, said the rise was not as encouraging as it first looked because it principally reflected a weather-related surge in energy output.

The market remains wary of the downturn in manufacturing that was highlighted by a negative survey from the Confederation of British Industry last week. And although manufacturing only represents 20 per cent of the economy, Credit Suisse First Boston claims that its impact can be disproportionate to its size.

"At this stage of the cycle, manufacturing typically plays a greater role than its GDP weight would suggest. The latest survey evidence leads us to cut next year's growth forecast to 1.3 per cent," says Mr Robert Barrie of CSFB.

Turnover by 6 p.m. was quoted at 773.1 million shares, of which 53.5 per cent represented Footsie stocks.