Footsie drifts higher despite Vodafone fall

If UK investors needed an illustration that the London market was dependent on Wall Street, they received it yesterday. With the US markets closed for Martin Luther King's birthday, the FTSE 100 index drifted all day, trading in a range of just 44.6 points.

Turnover, which passed the two billion share mark every day last week, slipped back with just 1.54 billion shares traded by the 6 p.m. count. At the close, it was a toss-up as to whether Footsie would be higher or lower on the day. After the auction, the blue chip benchmark inched higher to end at 6,170.3, a gain of 4.8 points. For once, the index gained ground despite a decline in shares of Vodafone, the market's biggest stock. It fell 4 1/2p to close at £2.31 1/2.

The market was given a positive tinge by the oil stocks as investors anticipated the meeting of the Organisation of Petroleum Exporting Countries (OPEC) tomorrow. The market is expecting a production cut of 1.5 million barrels per day, as oil producers react with alarm to the recent sharp price fall.

The oil price weakness also resulted in some better-than-expected economic figures which showed that UK input prices fell by 3.5 per cent between November and December, the biggest monthly fall since 1986. The figures indicate declining inflationary pressures in the UK and will help those on the Bank of England's monetary policy committee who are arguing for cuts in interest rates.

Retailers provided another area of interest with Tesco defying the recent gloom in the sector with a trading statement that pointed to like-for-like sales up nearly 7 per cent over the Christmas period. Another batch of retailers is expected to release figures today. And there was some modest corporate activity, with GKN saying that it was in talks with Brambles of Australia over a merger of its industrial services activities.

But the UK market, which has been trapped in a trading range for two years, still seems to be in search of a trend. At the moment, optimism over interest rates is being offset by pessimism about the direction of corporate earnings.

Morgan Stanley Dean Witter recently downgraded its 2001 estimate of UK profits growth from 10 per cent to 7 per cent but says there are further downside risks to the earnings outlook.

"Only once in the last 40 years (in the late 1960s) have earnings been unscathed by a period of 2 per cent or below GDP growth. Our UK GDP profile sees growth below 1.5 per cent in the first and second quarters." But MSDW adds that, since the last recession, UK earnings have become less cyclical and more interest-rate sensitive as industrials have declined and banking and insurance stocks have become more important.