Fragile feelgood factor

Happy shoppers are hoping for rate cuts

That, for the time being, is that. Consumers are back out there spending in the shops and buying houses.

One little cut in interest rates in early August forced through by five of the nine members of the Bank of England's monetary policy committee was all it took to give the economy a judicious tweak. One could get quite Churchillian about it. Rarely has so much been owed by so many to so few.

Well, maybe. The 0.7% monthly increase in retail sales volumes coupled with the strongest mortgage lending since late last year will almost certainly be enough to keep rates where they are next month.

It would take a truly horrible and, it has to be said, unlikely, figure for growth today to make the case for an easing of policy. Retailers desperate for a cut in rates to stimulate trade over Christmas and the New Year had better get over it. Rates are not going to be cut.

Whether that will prove to be a wise decision is another matter. The most telling statistic from yesterday's retail sales data was that the value of sales last month was lower than a year earlier - it was only the second time this has happened since the war.

Sure, consumers were attracted back into the shops (or, increasingly, online) but only because retailers were forced to slash prices to shift stock. Not really much evidence there of second-round inflationary effects from higher oil prices to concern Mervyn King.

On the contrary, it shows that the pick-up in the economy is modest, and may even be a false dawn. Why? Because the effect of the August rate cut was almost entirely psychological. It persuaded punters that there were more to come. But if that's it, what then?

Troubled Morrisons

Listen to the men from Morrisons and you'd think they'd done a damn fine job converting such a large number of store from Safeway to Morrisons in such a short time and retraining 56,000 staff. They gave a little video presentation of heartwarming television adverts. Sure, the company has had a little local difficulty since it bought Safeway last year, but that's all over now - it's onwards and upwards.

To cap it all, the Morrisons share price ended up 3.5p yesterday at 170.5p, having spent most of the day as the biggest FTSE-100 riser. So all's well then? Er, no.

Let's ignore the fact that there were enough numbers in this presentation to confuse even one of those enthusiasts who get their kicks out of generating huge prime numbers on their home computers.

The full-year profits guidance was towards £50m, a full £350m more than was anticipated just a few months ago. Where has the money gone? They aren't really saying. What is price deflation running at? They don't know. Next year's profits? Who knows.

New finance director Richard Pennycook made soothing noises about regaining control of the cash and costs, but yesterday's FT carried big adverts for four more big-cheese bean counters to help run his department. They are also looking for a new chief executive and the deputy chairman is looking for a new chairman - although the current one shows no sign of going.

Gross margins are falling, staff costs are rising. Current trading is not good and sales at the core Morrisons chain are falling alarmingly. There is no promise of a bounce next year, but they are working on an "optimisation plan" to drive growth. And all this in a tough market where Tesco et al won't give back sales without a very bitter fight. More reasons not to invest in Morrisons

A bet on a barrel

You might have thought oil exploration boom was of bubble proportions - witness Cairn Energy's run from 400p to £17.00 in less than two years, or Burren Energy's 140p to 750p surge in the same period. But yesterday's £1.2bn cash bid from Talisman Energy of Canada for Paladin Resources (90p to 355p) is a vote of confidence from a major industry player that long-term value is being created.

Put another way, it's a bet the oil price is not about to collapse. Paladin is being valued at about $15 per barrel of proven reserves. Because a large slice of its reserves are in Norway, where taxes on oil are among the highest, the City reckons the Canadians require a medium-term oil price of $50-plus to justify the deal. That's ballsy, but not outlandish.

The most striking fact is perhaps that Talisman is grabbing a business dominated by dull-but-reliable North Sea assets.

A lack of political risk, even from a hard-up UK chancellor, would still seem to count for something. That doesn't mean Cairn, with its Rajasthan discoveries, or Burren, which is focussed on Turkmenistan and Congo-Brazzaville, are overpriced, but they do carry a different level of risk.