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.
- 1 Lord Sewel quits: Peer 'boasts of having sex with BBC presenter and seeing 13 mistresses'
- 2 Kenya President Uhuru Kenyatta clashes with President Obama on LGBT equality: ‘Gay rights is really a non-issue’
- 3 Topshop pulls 'ridiculously skinny' mannequins after being shamed by customer on Facebook
- 4 Five-year-old boy forced classmate to simulate oral sex at primary school, claims mother
- 5 Black and ethnic minority people twice as likely to be hit by Tory cuts than white people, report finds
Mystery over deaths of 3,000 Napoleonic soldiers in mass grave has been solved
Boris Johnson apologises after giving his wife a 'backie' on his bike on the streets of London
Black and ethnic minority people twice as likely to be hit by Tory cuts than white people, report finds
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
Rolling Stones guitarist Keith Richards, 71, still enjoys 'an early morning joint' for breakfast
The 9 charts that show the 'left-wing' policies of Jeremy Corbyn the public actually agrees with
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
The last thing Labour needs is a leader like Jeremy Corbyn who people want to vote for
What the Labour party could look like under Jeremy Corbyn
I am the Jeremy Corbyn supporter that many will tell you doesn't exist
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
iJobs Money & Business
£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...
£40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...
£30000 - £35000 per annum + benefits : Ashdown Group: Finance Accountant - Fin...
£90000 - £98000 per annum + benefits : Ashdown Group: A truly exciting opportu...