A King-sized recovery task

IT SAYS much for the presentation skills of Sir Peter Davis that a miserable 0.1% rise in underlying sales should send Sainsbury's share price above £3 (briefly) for the first time in 10 months.

Davis not only crowned Justin King as his successor as chief executive but sorted out the spat with departing designer Jeff Banks. This was enough to obscure the grim 'like for like' sales, which have recently been more a case of dislike for dislike. The latest TNS market share figures put Sainsbury at 16%, behind Asda's 16.7% and Tesco's 26.8%. A year ago it had 17.4%, Asda 15.9% and Tesco 25.7%. If Morrison keeps growing and buys Safeway, Sainsbury will slide into fourth place.

It also slipped in a profit downgrade. Broker Seymour Pierce trimmed expected full-year profits from £690m to £675m.

Why then did the share price rise? There is hope that Justin King - promptly nicknamed Justin Time - will deliver the long-sought sales growth. There is, once again, talk that Sainsbury could become a bid target. France's Carrefour is the latest supposed suitor.

Perhaps. The Competition Commission's 500-page Safeway verdict rules out break-up bids for supermarket chains, but not 'buy and keep' bidders.

The numbers would work for Carrefour, which is four times Sainsbury's size and has a higher share rating. But it is struggling to integrate Promodes, its last big acquisition. As Nick Jones at Goldman Sachs points out, cross-border mergers deliver very limited synergies.

Perhaps the best hope for a bid is that clothing and food sellers are coming closer together as the supermarkets chase growth from what their jargon terms 'non-food' - mainly clothing and homeware.

Sainsbury sees huge potential in this area - or to put it another way, it has achieved very little yet. Nonetheless, it has chosen to go it alone in clothing. The Sainsbury family, with its 35% stake, appears ready to give the new team more time. As Richard Ratner at Seymour Pierce points out, hiring King makes no sense unless he is given 18 months to show his paces.

Sainsbury may be an underperformer, but a company making £675m a year is by no means a basket case. The shares appear inexpensive at 12 times earnings. But brokers fear that it needs to cut prices more in such a fierce market. And the jury is still out on whether Sir Peter's hefty spending on modernisation will bring results and how the new young chief will work with his formidable chairman.

Davis points out that he has taken nearly £1bn out of costs, which should make room for price cuts without forfeiting profit margins. But if the sales pace does not quicken, Sainsbury shareholders will have to ask once again whether their business is in the right hands. That is when the shares could get really interesting.

Easy does it

AMID mounting fears about consumers' debts, the Monetary Policy Committee's views on interest rates offer some reassurance.

Eight members voted to raise base rate to 3.75%, while one, Marian Bell, wanted to keep them at 3.5%. A rise to 4% was, apparently, not discussed at all.

Moderation is surely right. The latest research from JP Morgan points out that though average household debt is low, those that do have debts have rather a lot - £24,000 per household.

It looks as if further rate rises will be gradual. Simon Rubinsohn at fund manager Gerrard expects 4.25% this time next year. That benign scenario could be upset by the currency markets. If the dollar goes into freefall, the US could be forced into rapid rate rises.

The greenback steadied on Wednesday and the euro, having touched an all-time peak of $1.1975, fell back to $1.19, with sterling at just under $1.70.

But the dollar's strength was probably due largely to central bank support, especially in Japan.

Raids and trades

THE currency markets were more alarmed about the FBI's dramatic armed arrests of 47 New York traders than about the dollar. The US watchdogs say that crooked deals have 'pervaded the forex markets for 20 years'.

Could this happen in London? The currency markets, huge as they are, are self-regulated by the Foreign Exchange Standing Committee. Firms have a code of conduct and, of course, are required to obey the law. And that seems to be more or less that.

It will probably take a scandal to change things, and one day this will surely come. Meanwhile we had better keep our fingers crossed that the self-regulators are on top of the job.