Share prices soared on international stock markets, as a combination of factors - including benign US employment figures and a move back into the previously out-of-favour telecom-media-technology stocks (TMT) - led investors to bid aggressively for stocks least susceptible to a slowdown in economic growth.
The Irish market was also in better shape although it was Irish tech stocks which drew most attention, to the extent that Baltimore Technologies seems set for a return to the FTSE-100 index later this month, something that would have seemed inconceivable a few days ago.
Baltimore was given a boost earlier this week after reports on Internet bulletin boards that Microsoft plans to bid £12 a share for the company. Baltimore chief executive Mr Fran Rooney flatly denied there was any substance to the takeover reports, but speculation persisted.
At yesterday's closing price of £9.01 sterling, Baltimore is worth just over £3.6 billion sterling (€5.8 billion) and market sources believe that if Baltimore can keep its share price up until next Tuesday's close, the stock will qualify for automatic inclusion in the 100-share index. The share rose as high as £9.70 before weakening in profit-taking.
FTSE index managers meet next Wednesday to determine membership changes for the UK's various equity indices, using the previous day's closing prices to determine who is in and who is out. Baltimore was first included in the FTSE-100 last March when the boom in TMT stocks produced a radical overhaul of the composition of the index. The Irish software company, however, lost its FTSE-100 place in June after these stocks lost their lustre and Baltimore itself fell from a high earlier this year of £15 sterling to a low of £3.65.
The FTSE-100 index itself closed up 122 points at 6,795 - its highest closing level this year, while the ISEQ index in Dublin was up 1.3 per cent, just 4 per cent off its April all-time high.
Much of the strength of the ISEQ, however, is down to the disproportionate effect of Elan, which accounts for almost a quarter of the value of the entire Irish market and which had more than doubled in value this year. Most of the leading industrial and financial stocks, however, have performed poorly and suffered from the increasing migration of investment funds from Irish to large euro zone stocks.
Other Irish tech shares were also in heavy demand yesterday, with stocks like Trintech, Iona, Riverdeep, Parthus and SmartForce all ahead in large volume trading. And with European telecom stocks, all stronger on the day, even out-of-favour Eircom managed to make a tentative recovery and closed up nine cents on €2.46.
Even before the positive economic figures gave the markets a further boost, TMT stocks rose strongly in early trading in Europe, with investors taking the view that with economic growth slowing, it is time to get back into high growth stocks. "With the American and European economies slowing, you need to be putting your money into companies with the highest growth," said one fund manager.
"Investors' appetite for risk is growing again and they are buying the stocks that have been hammered in the past few months," said Andrew Stanbury, director of European Equities at Prudential Bache. The US Labour Department reported non-farm payrolls for August fell 105,000. Economists on average had expected a rise of 7,000 for August. "This is exactly the soft landing that Alan Greenspan wants," said Bill Cheney, chief economist for John Hancock funds. "There is no serious wage pressure, you've got the labour market easing off a bit. It's just what the doctor ordered."
"The market anticipated that these numbers would be friendly and they are," said one analyst. "This paves the way for the S&P 500 to break its upper boundary of the trading range."
Adding to the market's joy was news of a slowdown in the US manufacturing sector in August and a drop in construction spending in July. "Manufacturing is slowing, consumer spending is slowing, and that tells us that the landing gear is down, the runway is in sight and we're coming in for a soft landing," an analyst said.
