The chaos in the banking sector continues apace.
Northern Rock (NRK) saw its shares plunge again as investors suspect that, despite the government bail-out, it won’t be attracting any buyers any time soon – at least, not at the current price.
Other banking stocks were hurt by continued rumours and concerns that Northern Rock might not be the only one facing liquidity problems.
However, all this carnage among the banking sector has obscured the fact that signs are rather good for several other sectors…
The other big story of the moment – though very much second place to Northern Rock’s travails – has been the soaring oil price. The price of crude oil hit another record yesterday, heading above $82 a barrel.
Obviously, that’s not great news if you’re a regular driver, which most of us are. The AA has warned that the petrol price could hit £1 a litre within weeks. It’s not just about rising crude prices, it’s also the plans for another 2p tax increase in fuel duty, which takes effect from next month.
That also suggests that there’s a good chance that inflation will once again rear its ugly head in the very near future. At this time last year, according to The Telegraph, the price of a litre of petrol fell by 8p – this year it was just 1p. So it’s very likely that this will see petrol have a big upwards impact on the inflation index this month.
Dearer petrol also drives up costs – not just for manufacturers, but also for transporting goods in the first place. The Freight Transport Association told the paper: “a penny on the price of a litre costs industry about £130m,” saying that hauliers would have to pass the increase onto customers.
However, one group it’s good for is of course, the oil companies. BP (BP) and Royal Dutch Shell (RDSB) remain cheap, and as big blue-chip non-financial stocks, they are also a pretty safe place to be amid the current market turmoil. We’ve more on oil in the latest issue of MoneyWeek, which is out today.
It’s not just oil prices that are soaring. Soft commodity prices just keep going up and up. The milk price is rising – not because of price-fixing in this case – with Marks & Spencer (MKS) and Waitrose (neither of which have been dragged into the Office of Fair Trading’s allegations against others in the sector) jacking the price of a pint up to 40p, or more.
Wheat prices are still on the up too, after Australia slashed its harvest forecasts earlier in the week. Reserves are already at a 26-year low. Sir Ken Morrison – who is a part-time farmer, apparently – warned that the price could have further to go, perhaps rising another 10% by Christmas. “It is going to feed through,” said Sir Ken, to everything from cakes to “dog biscuits”.
Once again, bad for inflation – but not bad at all for agricultural companies. You can find out which ones might be worth buying into by reading our recent cover story on how to profit from soft commodities: Buy a farm – or agricultural stocks
If you’re not already a subscriber, you can sign up for a three-week free trial by clicking here: Sign up for a three-week free trial of MoneyWeek.
Turning to the wider markets…
Enjoying this article? Why not sign up to receive Money Morning FREE every weekday? Just click here: FREE daily Money Morning email
In London, the FTSE 100 ended the day down 31 points, at 6,429, although a late rally saw the blue-chip index pull back from an intra-day low of 11,013. Northern Rock led the fallers with a 28% drop, whilst cruise operator Carnival headed the gainers with a rise of 7%. For a full market report, see: London market close.
On the Continent, the Paris CAC-40 was down 42 points, at 5,688. And the Frankfurt DAX-30 was off 15 points, at 7,735.
On Wall Street, the Dow Jones was 48 points lower, at 13,766. The tech-rich Nasdaq was down 12 points, at 2,654. And the S&P 500 was 10 points lower, at 1,518.
In Asia, the Japanese Nikkei fell 101 points to close at 16,312 today, whilst the Hong Kong Hang Seng was up 175 points at 215,876.
Crude oil had slipped to $81.46 this morning, and Brent spot was at $78.62 in London.
Spot gold was at $735.40 this morning, having peaked at $738.30 yesterday. Silver, meanwhile, had risen to $13.45.
In the currency markets, the pound was at 2.0153 against the dollar and 1.4312 against the euro. And the dollar was at 0.7100 against the euro and 114.96 against the Japanese yen.
And in a statement late yesterday, it was revealed that the Financial Services Authority (FSA) chairman Callum MCarthy and Chancellor Alistair Darling will be questioned by the Treasury select commmittee next over the crisis at Northern Rock. Bank of England governor, Mervyn King, appeared before the committee yesterday.
And our recommended articles for today…
Why the Bank of England’s not so ‘independent’ after all
– If ‘Helicopter Ben’ has sent you running for a bolt hole outside the dollar, be sure to avoid the pound. To find out why compromising the Bank of England’s independence could spell disaster, click here:
Why the Bank of England’s not so ‘independent’ after all
Why you should invest in the car of the future
– With growing demand for low-cost cars in the East and the rise of environmental concerns in the West, the car of the future will be cheaper, leaner – and greener. To find out which companies should lead the way in producing such vehicles, see:
Why you should invest in the car of the future