I’ve not had a single buying order’, one private client stockbroker said.US interest rates are still expected to be forced higher but this week’s comments by the Chancellor and the Governor of the Bank of England have strengthened hopes that domestic money rates will be held and base rates will not reach the feared 7 per cent by the end of the year.The signalled General Electric Co strike at VSEL also helped sentiment. Economic growth was higher than expected but the sting was removed by a low inflation content.With the dollar and US bonds up sharply, oversold equities on both sides of the Atlantic were suddenly squeezed up in stock-starved markets, as bears were forced to make humiliating runs for cover.Government stocks, no doubt to the joy of Eddie George, joined the party, up by nearly a point.London’s turnover was a miserable 508.9 million, indicating that securities houses suffered yet another day of losses.Indeed for many the advance was a hollow event ‘I’m bemused. Datastream calculated that the advance added pounds 10.76bn to shares, pushing the market’s valuation to pounds 770bn.US figures caused the excitement. The recovery was largely technical and confined to blue chips. It was, however, enough to reinforce hopes that the stock market could enjoy a Budget rally ahead of the traditional Christmas advance, which would push the FT-SE 100 index to around 3,500 points by the year-end.
The index closed 54.2 points higher – its best gain for nearly three months -at 3,083.8.

One minute they were down in the dumps; then they were surging ahead, although few buyers were evident. It is early days yet, but at this stage it looks as if BAe has lost the battle and quite possibly, long term, the war as well.. Shares staged an astonishing rally. From the point of view of jobs, it makes little difference whether VSEL is owned by GEC or BAe. If one of these yards, Barrow or Yarrow, is not to survive long term, the cause will be the British Government through failure to supply enough work, not GEC’s desire to cut and burn. BAe’s only real hope seems to lie with creating enough of a political stink to force the Government into action. Even on this front, BAe’s chances do not look good once once the dust settles on the initial political knee-jerk reaction.

If the MoD wants competition, there are plenty of Continental suppliers who would just love to provide it.At this stage, therefore, it looks as if the MoD is willing to allow the two giants of the UK defence industry to slug it out. There seems no reason why Britain should maintain two warship builders in today’s shrinking marketplace. This is particularly the case if Europe makes progress in developing a genuinely open market for defence procurement. On the face of it, the case against GEC is a foregone conclusion.

If the MoD allows the bid to go ahead, it reduces the number of companies with naval shipbuilding capabilities from two to one, creating that worst of things, a powerful private sector monopoly.Traditionally, maintaining competition in defence supply has been a cornerstone of the ministry’s procurement policy.That may be changing, however. The idea of single-source contracting is not as abhorent to the MoD as it once was. With defence budgets under pressure everywhere, it may be necessary to have national champions to compete effectively in world markets. A stronger BAe would be less vulnerable to a takeover, making Lord Weinstock’s job that much more difficult should he ever decide to mount his often mooted bid for the group.With BAe saying it will not compete with GEC on price (it couldn’t afford it even if it wanted to), its only real hope of staying in the race now lies with the competition authorities and here the outcome will depend crucially on the attitude of the MoD. GEC’s own Yarrow yard might have become marginalised.Furthermore, the deal had such clear financial advantages for BAe, allowing the group to recapitalise itself without resorting to a rights issue, that it could not have made any sense for GEC to stand idly by. If BAe had been allowed to win VSEL, it would also almost certainly have secured the prime contractor’s role for the up and coming Trafalgar II submarine work Other contracts, too, might have gone its way. The answer may lie with talks held earlier this year when Sir Peter Levene, the Government’s former head of defence procurement and now Wasserstein Perella’s London chief, tried to broker a joint bid by GEC and BAe for VSEL.
The talks collapsed when GEC said it was not interested, perhaps giving BAe the comfort it needed to proceed on its own.But saying you are not interested in a joint bid with your main defence industry rival and allowing your main defence industry rival an uncontested run are two very different things.