STOCK MARKETS are showing remarkable resilience to the havoc wrought by Hurricane Katrina. For now, UK investors much prefer to contemplate the prospect of a spate of bids and deals rather than consider the extraordinary potential ramifications of what has happened to New Orleans. In the United States, stock markets have held up remarkably well in the days since Katrina struck.

Yet the effect of the hurricane looks likely to be felt around the world and stock prices are unlikely to be immune.

Rising fuel prices feed through into almost every aspect of business. If there is not a direct effect, through the cost of transport and power, then there is likely to be an indirect one, as consumers find that a greater slug of their budget is having to go into funding their own transport costs and there is less to spend in other directions.

Last night economists at Goldman Sachs estimated that the cost of rising fuel prices could be a hit of at least half a per cent on third and fourth- quarter growth in the United States. The dollar suffered as dealers read the implication to be that interest rates would not be increasing at the speed they had previously thought.

The immediate problem for the United States is with a lack of gasoline, or petrol as we prefer to call it, rather than oil itself. But although the price of crude slipped back a jot from its recent highs, that may be a short-term response. With the Gulf of Mexico’s oil output virtually curtailed following the hurricane, the US will need to import more oil in order to feed its voracious appetite for gasoline. Thus the likelihood of the oil price losing much ground looks distant, and further rises perfectly feasible. Even if the Saudis respond positively to President Bush’s calls for them to make more oil available to the international markets, the price pressure is unlikely to subside. That means that the UK will continue to feel the effects of expensive petrol. According to the AA Motoring Trust, a typical two-car owning family is now paying £23.32 a month more for petrol than it would have done at the start of this year.

That family could decide to travel less, or take public transport but the evidence is that people have not yet been deterred from paying the higher prices. And if Britons are reluctant to cut down on their motoring, in the United States it would be seen as a denial of civil liberties not to be able to hit the road at will.

Businesses very rarely even have the choice, in the short term, of cutting back on their fuel bills so corporate costs are destined to rise.

This is all apparently of little current concern to investors. Encouraged by the hostile bids from Saint Gobain for BPB and now from Deutsche Post for Exel, they are banking on investment bankers drumming up a winter of similar corporate activity.

If those two deals are indeed the forerunners of the wave of cross-border mergers that roving bankers have tried to engineer for years, then there certainly could be some excitement to be had. The UK also offers plenty of stocks where a safe and generous dividend yield should provide insulation against any possible short term fluctuations in capital values.

Nevertheless, the omens for the stock market post Katrina do not look as promising as they did before she wrecked New Orleans. Add to that the latest housing figures, which show that prices slipped again in August, and there is little reason to think that consumers will be bouncing back into action to buoy up British business.

Cadbury board deserves trust

CADBURY SCHWEPPES’S shareholders have made a 130 per cent total return since it launched its “Managing for Value” philosophy in 1997, against a return of 40 per cent on the FTSE 100 index. That is not a bad achievement for a company in the mature markets for sweets and fizzy drinks; enough to silence those who are sceptical of the company’s addiction to management speak, in depth reviews and frequent, sometimes surprising deals.

Oddly, however, the return on Cadbury Schweppes is the same as that from Associated British Foods, a family-controlled company that makes bread and sugar. ABF does not see any need, like Cadbury, to mention that “the overriding goal is to consistently deliver superior shareholder returns” but had the entrepreneurial nous to back retailer Primark.

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