Although the FT-SE 100 rose on the week, it closed 1 per cent lower on Friday after the US Dow Jones Index plunged 1.2 per cent in the first two hours of trading. The Dow continued to plummet after London closed, down nearly 2 per cent on the day. This will depress trading here at the start of the week.
The forthcoming flotation of the Alliance & Leicester building society before the end of the month and the general election are also going to be the main focuses of investors next week.
"The US interest rate outlook has a very important influence on UK stocks," said Job Curtis, a fund manager at Henderson Investment Management.
Several economic reports, including March producer prices, retail price inflation and wage inflation, are expected to add to concern that UK rates are poised to rise immediately after the general election. That, combined with a dearth of company earnings, means shares are unlikely to make much headway.
The prospect of an imminent rate rise has prompted sterling gains against most European currencies, which could mean trouble for companies like RMC and Redland that rely on continental Europe for a large amount of their profits. The pound is up more than 5 per cent against the mark in the last three months and up more than 4.9 per cent against the French franc.
The Alliance & Leicester building society will list on the Stock Exchange on 21 April. Since the shares are being distributed rather than sold, no one has any idea how the market will price them, nor how many will be available to institutional shareholders. A&L has set up an auction system for customers who want to sell their shares, and the results of the first auction will not be known until just before trading begins.
This week there could be strong buying or selling of Abbey National and Lloyds TSB Group as investors adjust their holdings in banks with strong mortgage businesses ahead of the listing of pounds 18bn to pounds 22bn in new mortgage bank shares this year. "It affects the whole banking sector because it will make the whole industry bigger," said Curtis. "People will find themselves massively underweight."
Earnings reports are due from auto parts maker LucasVarity, retailer House of Fraser and sports fashion retailer JJB Sports but these are likely to provide isolated pockets of good news.
MARTIN CEJ Copyright: IOS & Bloomberg