Uncertainty over the potential timing and scale of a bail-out of the Irish economy by its European neighbours continued to dominate markets at home and abroad this week. London’s FTSE 100 reached 5831 points on Monday but went on to slide through the week, only climbing again Thursday when it emerged that a multi-billion Euro Irish bail-out was a “when, not if” issue. More clarification on Ireland also lifted US and Asian markets later in the week.
Meanwhile, Fed chairman Ben Bernanke boosted spirits with a broadside at critics of US monetary policy and an attack on what he saw as Chinese efforts to undervalue the yuan. Adding insult to injury, though, the Chinese dampened the mood with news that regulators were moving to control inflation by increasing capital ratio requirements for the country’s banks.
In London, the FTSE 100 index dipped again on Friday, trading down 50 points to 5,717 at lunch. Elsewhere, the FTSE 250 and AIM markets put in similarly uninspiring performances. It was a week in which big corporate news was thin on the ground but, despite this, 65 London-listed stocks hit 12-month highs - similar to last week but with fewer lows (just 15).
Austerity strikes again
Heading up the new lows list in market cap terms this week was Britain's largest public sector outsourcing group, Capita Group (LON:CPI). It fell to 660p after it indicated that sales would suffer more from austerity measures than previously expected. The company was one of 19 suppliers that met with the government in July to discuss how they could reduce the cost of their government outsourcing services. It suggested then that this could “affect growth in the short term” in some areas but, this week, Capita said that revenue growth would be modest because many existing contracts would not be renewed or offset with new deals. The news raised doubts over earlier predictions that support services firms would be winners from the new Coalition government on the basis that spending cuts would deliver opportunities for some major pieces of outsourcing.
Finding safety amongst defensives
While the major indices struggled as oil, mining and financial large caps took a breather, the money flowed into defensive sectors with stocks in the beverages, food and pharma sectors all posting new highs.
