Another profit warning from the US technology sector meant another bad day for the London market yesterday.
Motorola, the mobile phone manufacturer, warned that its fourth-quarter earnings and sales would be well below forecasts. Its warning followed gloomy statements earlier in the week from Apple, Dow Jones and Bank of America.
Equity markets surged on Tuesday after Mr Alan Greenspan, the US Federal Reserve chairman, talked of a slowing US economy, leading many economists to take the view that US interest rates will be cut next year. But a slowing economy also means slower earnings growth. Investors now seem unsure whether lower rates or lower earnings is the more significant factor.
The Bank of England left interest rates on hold, as it has since February, marking the longest period of stable rates since 1990. The decision of the monetary policy committee was widely expected.
"We expect rates to be stable for the next six months," says Mr Michael Saunders, UK economist at Schroder Salomon Smith Barney. "The MPC will be reluctant to hike rates while world growth is slowing and inflation is below target. It will be hard to get a majority for easing, given signs that pay deals are picking up, the government is planning a major fiscal stimulus and sterling's trade-weighted index is slipping."
But the Dow Jones Industrial Average and the Nasdaq Composite held up rather better than investors expected when trading opened in New York and Footsie regained much of the lost ground.
Nevertheless, it was a bad day for new economy stocks. The 10 worst performers in the FTSE 100 index were all from the technology, media and telecoms (TMT) sectors.
The volatile Techmark 100 index fell 93.44 to 2,737.91. The index provided its own profit warning in the shape of BATM Advanced Communications, the Israeli-based connectivity equipment group.
The other indices were also lower with the FTSE 250 dropping 65.3 to 6,469.4 and the SmallCap 27.2 to 3,254.6.
Mr Bob Semple and Mr David McBain of Deutsche Bank say that "the valuation of the UK market has improved significantly in recent months due to a combination of price weakness, modest earnings growth and improved outlook for interest rates."
