The London market's second-liners eclipsed the leaders yesterday, powering ahead and driving the FTSE Mid-250 to intra-day and closing records for the second consecutive session.
The FTSE 100 constituents were left trailing by the pace of the latter and were again hit by a sizeable sell-off affecting most of the financial areas of the market. The small-cap stocks continued their gradual advance, closing relentlessly on their all-time highs.
The winning performances from the minor FTSE indices, but particularly the Mid-250, were triggered by a significant shift in sentiment in sterling after the revelation that one of the so-called "hawks" in the Bank of England's monetary policy committee had shifted his stance and was now advocating leaving interest rates on hold. The committee was said in the report to have voted five-three in favour of rates staying as they are, having been split four-four for the previous three meetings. Dealers said the market interpreted the change of heart as an indication that British rates had peaked in the current cycle, with the consequent implications for sterling.
Sterling fell below DM3 to a seven-week low against the German currency, with the Bank of England's exchange rate index slipping back to 105.9, compared with 106.2 overnight.
Outside the monetary policy committee/currency stories, it was a rather confused trading session in the equity market. Wall Street gave no real lead for European markets overnight, the Dow Jones finishing eight points lower. And, with Asian markets generally quietly lower, it was left to London stocks to find their own way at the outset.
The reports of a shift towards a more benign interest rate outlook produced a good initial performance by the whole market, the FTSE 100 marching ahead to post an early gain of almost 40 points.
Sentiment, already positive, was given a further lift with news that retail sales had risen 0.3 per cent last month to a year-one-year figure of 4.1 per cent, well within most economists' forecasts and in keeping with the recent batch of economic news viewed as interest rate friendly.
The FTSE 100 finished the day 33.0 lower at 5,898.1, having swung in a near-120 point arc during the day. At its best, shortly after the retail sales news, it posted a near 40-point rise before falling rapidly as Wall Street came in dully.
At its worst, the index showed a 79.7 decline, falling decisively below 5,900 only to rally at the close. One feature of the session was the gradual pick-up in market turnover. At 6 p.m., overall business in the market reached 1.08 billion shares, well ahead of recent levels.
Top gun in the FTSE 100 was Smiths Industries, which jumped almost 10 per cent, with other manufacturers and exporters also making rapid progress as sterling dipped. The FTSE Mid-250 has now overtaken the FTSE 100 as the best performing FTSE index this year. The Mid-250 has risen 17.1 per cent since the turn of the year, the FTSE 100 14.8 per cent and the SmallCap 14.1 per cent.
Hopes that interest rates have peaked helped exporters such as British Steel gain 7 1/2p to 159 1/2p, GEC grow 19p to 497p and Smiths Industries head 76 1/2p north to 886 1/2p.
Expectations that Great Universal Stores will win its takeover battle for Argos tomorrow mounted as GUS lifted 2p to 814p and Argos slimmed 8p to 608p. The bid values Argos shares at 650p.
Insurance companies continued their rocky ride as brokers expressed doubts over the perceived merger speculation froth in the sector's share price.
General Accident fell 36p to £14.27 and its proposed merger partner Commercial Union, which has warned of possible weather related losses, fell 40p to £11.20.
However, Legal & General, which proved its share price had some substance with an increase in new business figures for the first quarter. The company grew 1p to 686p.
