New York and London stock markets went their separate ways since our last report on April 25, with the DJ Industrials shedding 146 points to 12,745 and the FTSE 100 adding 113 to 6,204. London’s rise, however, seems to have the look of a dead cat’s bounce, as underlying indicators remain bearish. There are more bad debts to come from Britain’s leading banks and not just from the continuing debacle of American sub-prime mortgages. The number of companies defaulting on their junk-related debt in North America is running at its fastest rate in five years amid a slowing economy and contacting markets. Some 28 entities have defaulted so far this year, or $18.4 bn, exceeding the 17 defaults for all of last year. Moodies expects the global default rates to rise to 4.8% by the end of this year.
Meanwhile, credit markets in Europe had their worst week ending May 9th in nearly six months owing to worries of a return to unstable conditions seen in the first quarter. Data from a survey of senior loans officers suggest the second round effects of the credit crunch would raise corporate defaults sharply.
Back in Britain, the housing market continues to weaken, and falling house prices and rising orders for repossessions reached their highest level since 1993. The Council of Mortgage Lenders forecasts a repossession rate of 0.38% (45,000 repossessions) in 2008 but it would not surprise this column if they at least doubled in 2009.
On the inflation front, it looks as though the BoE, which kept interest rates on hold earlier this month at 5%, will have to write an open letter to the Chancellor explaining the deteriorating outlook on inflation. Transfixed by the credit crunch implications, the BoE has relegated its prime concerns over inflation to second division, a move that could herald a return to stagflation.
Our own list of stocks saw rises outnumber falls by 21 to 10. Leading the gains was outsourced logistics provider, TDG, which rose 23.9% to 272.75p following an announcement that its rival, Wincanton, also made a takeover approach worth 290p a share, above the 275p offer from private equity group, Laxey Partners, which already owns 22% of TDG.
Other companies in the 3PL sector seemed to rise in sympathy, with DSV and Kuehne & Nagel adding 12% and 8.8% respectively. Deutsche Post, the world’s largest outsourced logistics group, rose slightly on news of an upbeat 2008 first quarter as “business was very satisfactory with underlying profits making progress year on year,” said the group. Deutsche Post has also appointed a new manager to turn round the loss-making DHL American subsidiary. Going against the grain was Fedex, down 4.3%, hit by soaring costs and falling sales caused by a weakening American economy. News of a shareholder in the company suing the board hardly helped. The shareholder alleges the directors exposed the company to damages by misclassifying employees as contractors, a law suit Fedex has dismissed as frivolous.
On the hardware pitch, there were impressive gains from KCI Konecranes, up 13.2% and Cargotec (Kalmar) up 8.1% but these were countered by falls of 11.5% at Manitou and 7.7% by Nacco (Hyster and Yale). Manitou’s share price drop to within a whisker of its year’s low seems to reflect declining margins, as its net income barely changed in 2007 despite an 11.3% rise in sales to 1.26 bn Euro.
The IT pitch was buoyant, with Britain’s leading data capture supplier, Psion, adding 10.2%, EMS 8.3% and Belgravium around 7%.
Bill Redmond
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