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Fall in US stocks hits Footsie early on as traders await BoE rate decision

Shares in London’s top stocks opened lower ahead of the Bank of England’s monthly decision on interest rates later today, with the feeling that rates may be left unchanged but with the possibility of future drops. It was however last night’s fall on the Dow Jones Index that gave the early downside impetus to the FTSE 100 index despite some sharp moves on special situations.

Enterprise Inns saw some profit taking after yesterday’s stunning rise on news that it was eligible to convert to a REIT if an internal restructuring of the group was undertaken. Sector peer Punch Taverns saw some follow through buying on thoughts that it too might continues to consider the opportunity of a potential conversion to REIT status, but we feel these rises look overdone. There were similar moves last year in the commercial property sector, and if they marked a major sector top, so bulls should be very cautious here.

Another interesting story is developing at Carphone Warehouse where there have been rumours of a potential takeover bid for some time. It is now to sell a 50% stake in its retail business for £1.1bn to US consumer electronics retailer Best Buy and the two groups will form a new company. Again the shares have had a good run, and in the absence of an outright takeover we see short term lower prices for a short while.

At the top end of the market, Unilever is up a hefty 5% after another very solid statement showing a 7.2% rise in Q1 underlying sales, which was well ahead of forecasts. The shares have been dull for quite a while and this could be the catalysts for a renewed bout of outperformance.

Head of Research at Blue Index, the experts in Day Trading
08/05/2008

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