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
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
News
science
Life and Style
Emoji are rapidly becoming the language of the internet
techWhy internet acronyms are being driven out by emoji
ebooks
ebooksA celebration of British elections
  • 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

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before