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Buyers back in force on plenty of corporate news

After a quiet start, there was another surge of buying today as traders digested another slew of corporate news over the weekend, together with this morning’s statements. Once again, the strength in the oil price has spurred rallies in the sector, with one of our favourites Cairn Energy moving again to new highs after another 3% rally.

At the bottom end, British Energy is back below 700p on some disappointment that French group EDF was the only party interested in making a full bid. This is clearly not the end of the story, with the government looking for a constructive split up of the group, but the stories of a knockout bid far higher than where we are now look fairly wide of the mark, so it could go any way in the next day or two.

Within this morning’s results, Centrica confirmed that as expected H1 group operating profit would be materially below that of last year due to lower profitability at its British Gas business despite its upstream business booming. Otherwise there was little of note in the statement, and the shares edged up. Our feeling though is that the overall outlook still appears weak here, and we see eventual further downside. In the same sector, there were press reports over the weekend that BT was in talks to sell its British data centres to Hewlett-Packard for £1.5bn. This too has caused a short term rally in the shares, but we still see downside here on the bigger picture.

The outlook for the FTSE 100 index now looks a little more cautious after the rallies of recent weeks, and we are concerned that the big stock issuance in the bank sector may impact on short term performance, not to mention further downgrades to the outlook for UK economic growth. Balanced positions are again recommended for CFD traders right now.

Head of Research at Blue Index, the experts in Day Trading
12/05/2008

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