Investors unperturbed ahead of rates decisions

There were few signs of nerves in London yesterday as investors awaited the first of the week's three big interest rate decisions…

There were few signs of nerves in London yesterday as investors awaited the first of the week's three big interest rate decisions. With the US Federal Reserve widely expected to leave rates on hold, as it did, and few expecting a rate change from the Bank of England monetary policy committee when its decision is announced tomorrow, attention has clearly shifted from interest rates to corporate profits. But for once, the latest US profit warning from photocopy group Xerox was taken in the London market's stride. The only real impact was on photocopier distributor Danka Business Systems.

Nor did technology stocks show much sign of being upset by Monday's second consecutive sharp fall in the tech-heavy Nasdaq Composite index. Misys helped restore the sector's sang froid with an upbeat trading statement that helped its shares become the best FTSE 100 performer of the day. The Techmark 100 index ended strongly, up 64.11 to 3,846.11.

There was some modest excitement in the banking sector on the back of a US newspaper report that HSBC was about to merge with Merrill Lynch. Although HSBC denied the story, its shares gained 2.6 per cent. Given that Merrill and HSBC announced a private client joint venture in April, merger rumours are inevitably going to resurface from time to time.

With oil stocks also higher on the back of Monday's rebound in the crude price, the market had plenty of impetus to move higher. Blue chips also had a lift from at least one buy-side programme trade. The FTSE 100 index ended up 60.5 at 6,345. But the rally was not exactly wholehearted. There were declines for the FTSE 250 and the SmallCap, but unlike the Footsie, both are still showing gains on end-1999 levels.

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UK corporate profits estimates have seen steady downgrades during much of the year but they continue to be bolstered by the market's heavy oil weighting.

"At the headline level, September saw IBES consensus earnings estimates in aggregate rise by nearly 0.5 per cent. However, excluding the oil sector, earnings estimates fell," said quantitative analyst Bill McQuaker of Credit Suisse First Boston in his latest research note.

"Consensus earnings estimates for the FTSE All-Share now stand at 13.7 per cent, but excluding oils, they are just a touch above 7 per cent."

CSFB says its stocks to watch are Amvescap, the fund management group; Logica, the software company; Reuters, the information group; and Schroders, the financial services company.

Turnover was fairly modest, although this was not surprising on a day when Frankfurt was closed to celebrate German reunification. By the 6 p.m. count, 1.46 billion shares had been traded with Vodafone accounting for more than 10 per cent.