International Markets: Investors wary on eve of anniversary
Sunday 12 October 1997
By contrast, bonds are expected to gain as producer price figures show inflation is not accelerating, dampening concerns about how big any further rate increases will be.
"In relative terms, the gilt market still has a lot going for it," said Tony Turner, a fund manager at Norwich Union Investment Management. "The economy isn't running out of control."
Last week, the benchmark 7.25 per cent government bond was little changed on the week with the yield at 6.5 per cent, up 31 basis points. However the FT-SE 100 Index fell to 5,227.3, down 103 points, or 1.9 per cent. Banks, including HSBC Holdings, oil and drug companies led the decline.
In 1987, the FT-SE index lost 12 per cent in two days.
"There are a lot of parallels between 1987 and 1997," said Job Curtis, a director at Henderson Investors. "The market consensus has been that inflation isn't a problem but if we get some more strong numbers, these expectations could shift."
Figures are due out this week on producer prices, employment, and on the public sector borrowing requirement. The Bank of England will also release minutes from its last rate meeting.
Economists expect producer prices tomorrow will show factory gate prices grew at an annual pace of 1.3 per cent in September, down from 1.4 per cent in August, posing no threat of inflation.
"It is pretty clear that price pressures at the factory gate remain subdued," said Philip Shaw, an economist at Investec. "We expect no significant change before the end of the year."
Still, investors expect the central bank to raise the base lending rate by a quarter percentage point to 7.25 per cent by the end of the year to keep inflation in control.
"We're still expecting a couple of quarter-point rises over the next six months, with probably one more rise this year," Mr Turner at Norwich Union said.
Gilts have benefited as investors bail out of European bonds. Higher interest rates in several countries, as well as the resignation of Italian Prime Minister Romano Prodi, after he failed to get his coalition partners to agree a budget compromise, have helped make gilts look more attractive.
Bonds across Europe were hurt on Thursday after the Bundesbank raised its target money market rate for the first time in five years.
- 2 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 4 How the language you speak changes your view of the world
General Election 2015: Fishing is on Nigel Farage's mind as he casts a line to the disaffected of Grimsby
The man who filmed the Freddie Gray video has been arrested at gunpoint
Indonesia executions: Death row British grandmother Lindsay Sandiford will refuse to wear a blindfold when she faces firing squad
Oxygen-starved 'dead zones' with no marine life up to 100-miles long discovered in the Atlantic Ocean
Russian warships accused of 'chasing away' Swedish vessel to prevent Baltic States from achieving energy independence
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: SNP and its activists 'openly racist' towards the English, Farage says
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...
£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...