Major European Chipmaker Warns of Profit Weakness
ALLAN CHERNOFF, CNN ANCHOR: Now let's head over to London. Hugh Carnegy is standing by. He is the World News Editor at "The Financial Times" and Hugh, the market's down across the board. Overseas, a little bit of a profit warning from the major chipmaker there.</s>HUGH CARNEGY, WORLD NEWS EDITOR, "THE FINANCIAL TIMES": Yes, we've had the markets off again. More worries about tech stocks, and we're limping along, really. I think, you know, it's quite interesting to look at the broader trend at this stage of the year as we -- as we approach the halfway point. But certainly if you look at the London market, it's performing in a way that suggests that expectations for the end of the year are unlikely to be met, and there are some factors that have come in. Of course, we've all been very familiar with the way tech stocks have gone down, but now there's a kind of macroeconomic outlook there, which is giving people worries about which way interest rates may move next.</s>CHERNOFF: OK. Well, over here we're still expecting rates to decline just a little bit, but what's the situation in Europe right now?</s>CARNEGY: Well, the really worrying thing here, as far as the markets are concerned, is this upticking inflation, which is spreading across the euro zone area, and also in the U.K. We've had various indications of inflation in countries -- Germany, France, and in the U.K. too, which suggests that the Central Banks are going to have to take this seriously, and now, for example, in the U.K. there's a lot of speculation that the rates will start to move up again before the end of the year. Now that was something that the markets had not factored in up until a couple of -- a couple of weeks ago really. Certainly, over the last month or so, that's become more and more into focus, and that has started to take off any recovery or at least it started to take off some of that sentiment that said that by the end of the year, the markets could be moving up again.</s>CHERNOFF: Well, certainly rising interest rates tend to be the archenemy of stock prices -- are they not?</s>CARNEGY: Well, absolutely, and of course, you know, in the market right now we've, as I said, very familiar patterns. Tech stocks have been doing badly. There's been a lot of earnings warnings -- profit warnings over here just like you've had over on that side of the pond. But there was some feeling that particularly the more defensive stocks, food retailers, banking, and so on, which have been doing better, would maybe help carry the market through the second half of the year. If you take the London market, for example, people were looking at maybe 6 1/2 thousand, seven thousand by the year end, but we're still languishing just over 5 1/2 thousand -- five-six, five-seven. So there's a very long way to go and if we get monetary policy turning direction and people think -- expecting rate cuts, then as you -- as you indicate, the markets aren't going to like that at all.</s>CHERNOFF: OK. Hugh Carnegy in London, thank you very much.