Market Notes
By CUSTOS
A FIER a universally pessimistic weekend press 11,--with even the Observer recommending devaluation—the Stock Exchange opened ner- vously this week and suffered a substantial fall in prices as selling developed. The Financial Times index dropped over fifteen points in a week —the biggest fall seen for about a year. The suggestion inspired from Whitehall that the Chancellor was not considering another 'mini- budget' before Parliament rose simply added to the selling pressure. The official idea that the new sterling crisis is merely a temporary one was simply not believed. Indeed, the market seemed to be convinced that if Mr. Callaghan did not take further drastic deflationary action the E would not be saved. Gold shares therefore advanced and ANGLO AMERICAN, the leader of that market, reached a new high level of 19+ (yield 3.3 per cent). Government stocks fell to new low levels. War Loan dropped to 49—the lowest price ever recorded—before recovering slightly to yield 7.15 per cent. By strange contrast Uruguay 31 per cent remains steady at 50!
The Equity Slump
Equity shares were overdue for a correction, for the market had driven prices up so high that last week the earnings yield on the Financial Times Actuaries 500-share index .at 6.92 per cent had fallen below the yield on long-dated govern- ment stocks. It had generally been regarded as a dangerous sign when a reverse yield gap is thrown up by the equity dividend yield falling below gilt-edged yields but never before has the equity earnings yield set up a reverse yield gap. All the `blue-chips' shares were sold heavily— being the most marketable—and even tobacco shares, after their recent improvement, came in for heavy profit-taking. Oil shares also became very depressed when aunstsu OIL announced that its recent test in the North Sea did not disclose gas in commercial quantities. The only share to go -against the trend—for obvious reasons—was CHANNEL TUNNEL. JAGUAR, however, rose or the news of the merger with BMC. The terms— two BMC plus 22s. 6d. of 71 per cent loan stock for every Ordinary and two BMC plus 10s. 3d. of loan stock for every `A' Jaguar share—brought the bid value for the 'A' up to 38s.—a good improvement on the market price of 32s. 3d. But will Jaguar shareholders like to be given BMC paper? There will be a good deal of heartache over the merger among Jaguar enthusiasts. At the moment of writing the equity market is trying to recover but unless the institutions addunit trusts resume their buying any recovery will be short-lived.
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