Comment: Footsie breaks through 7,000 without hoopla

Martin Flanagan

Martin Flanagan

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WELL, the FTSE 100 has passed the vaguely totemic 7,000 milestone, having breached its previous 15-year record high of 6,950 last month. But two things need to be said: it did not storm through the latest high-water mark yesterday, it was more an amiable saunter.

And it had absolutely nothing to do with any feelgood factor from George Osborne’s Budget earlier in the week. It wasn’t that the Chancellor did anything particularly bad as far as financial markets were concerned; it’s that he didn’t do anything particularly noteworthy for investors, either.

The truth is that the latest spike in the market has little to do with domestic factors. Much more relevant is the Federal Reserve’s guidance earlier this week that has suggested US rates may say lower for a bit longer than previously expected.

American monetary policy and Chinese demand for commodities are two major swing factors affecting blue-chip equities in Britain, particularly with the heavy weighting of mining groups in the current make-up of the Footsie.

There may well be some domestic impact on the index around the time of the forthcoming UK general election. And there certainly will be if there is any whiff the UK may quit the European Union in a 2017 referendum.

But, those aside, we are likely to see overseas developments, both economic and geopolitical, be the key determinants of where the FTSE 100 heads for some time yet.

The last long-running equities high – broken through in February this year – was built on the sand that was the Hawaiian-shirted dotcom boom as investors bought blithely into the bubble.

When that bubble burst after US interest rates rose and the tide went out showing lots of companies swimming in jargon without profits, the Footsie plummeted. Then came the 9/11 terrorist attacks on America.

There’s also plenty out there could go wrong this time as well (see above). I certainly don’t sense euphoria in this market.

Equities are going up because investors are making generally positive judgments on the fluid balance of probabilities rather than any bandwagon effect. And, in the longer term, that’s no bad thing.

TSB looking to benefit from Spanish practices

TSB hardly had time to get its stock market feet wet. Floated only last June, the new challenger bank to the big five clearers has accepted a £1.7 billion takeover bid from Sabadell of Spain, which could well see it exit the stock market before its first anniversary.

It may be one fewer UK bank to invest in, but the 31 per cent premium being offered for the shares by Sabadell is good news for shareholders already in situ.

And, in customer terms, TSB is likely to be able to throw some extra money and superior IT back-up systems at its hoped for expansion from the deep pockets of its new Spanish parent.

Households and small businesses – TSB’s avowed no-frills market – are totally unconcerned whether their bank has a UK public listing. Given the after-effects of the financial crash and the battering both universal banks (Royal Bank of Scotland, Citigroup etc) and narrow banks (Northern Rock, Bradford & Bingley et al) received, customers might even secretly welcome dealing with an efficient operator operating below the UK stock market radar.

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