Bogeyman stays his hand

NEW YORK MARKET

By Hal Paul and Dave Liedtka

Financial futures suggest now is as good a time as any to buy bonds. That's because the bogeyman of the fixed-income markets, the Federal Reserve, isn't expected to raise interest rates when policymakers meet on Tuesday, or for that matter in July and August.

"There is nothing in the short end of the market through 90 days to suggest investors are demanding a premium in return for the risk of higher interest rates", said Frank Rachwalski, manager at Scudder Kemper Investments. "It says the Fed is on hold for a while."

Tame inflation and signs that Asian economies are headed for a fresh bout of turbulence are likely to stay the Fed's hand, which may be reluctant to risk aggravating Asia's woes with a rate increase that could pull money out of the region.

Low borrowing costs have sent US stocks to records this year, and indications are that more gains are ahead as investors gear up for the second half of 1998.

"I don't think the Federal Reserve wants to kill this market," said Greg Smith, chief investment strategist at Prudential Securities.

"It would be very hard for the Fed to raise rates without some hook of inflation to hang it on."

Weak earnings could slow the rally, however. A number of high-profile companies, including Hewlett-Packard and National Semiconductor told investors last week that profits would disappoint expectations.

Investors will be eyeing earnings from Dell Computer and Novell this week for further signs of a slowdown in the computer industry.

The Dow Jones Index rose 0.5 per cent, to 9096.00 last week, registering an all-time high of 9211.84 on Wednesday. The 30-stock average is up 15 per cent this year, putting it well on course to rise more than 20 per cent for a fourth straight year.

The US economy is booming now; it grew at an annual rate of 4.2 per cent in the first quarter. Fed officials say anything faster than 2.5 per cent risks accelerating inflation. Investors expect the pace to slow, though.

"I don't think first-quarter growth is sustainable," said John Grib, a fund manager at Investment Counsellors of Bryn Mawr.

The rapid pace of mergers and acquisitions isn't expected to let up. The S&P Auto Index climbed 3.4 per cent last week, spurred by the announcement on 7 May that Germany's Daimler-Benz and Chrysler would merge.

"I believe mergers are going to continue in a big way in the US," said Michael Price, president of Franklin Mutual Series Fund.

Start your day with The Independent, sign up for daily news emails
News
people Ex-wife of John Lennon has died at her home in Spain
News
Nick Clegg on the campaign trail in Glasgow on Wednesday; he says education is his top priority
peopleNick Clegg remains optimistic despite dismal Lib Dem poll ratings
Life and Style
2 Karl Lagerfeld and Choupette
fashion
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
News
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
people
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?