International Markets: Investors wary on eve of anniversary

LONDON

UK markets are likely to be pulled two ways as investors debate the outlook for interest rates. Stocks are expected to slip as investors nervously register the approach of the tenth anniversary of the 1987 stock market crash at the end of the week.

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.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Business Development Executive / Sales - OTE £40,000

£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...

Guru Careers: Research Associate / Asset Management Research Analyst

£40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...

Ashdown Group: Finance Accountant - Financial Services - Central London

£30000 - £35000 per annum + benefits : Ashdown Group: Finance Accountant - Fin...

Ashdown Group: Chief Technology Officer (CTO) - Glasgow

£90000 - £98000 per annum + benefits : Ashdown Group: A truly exciting opportu...

Day In a Page

Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

Solved after 200 years

The mysterious deaths of 3,000 soldiers from Napoleon's army
Every regional power has betrayed the Kurds so Turkish bombing is no surprise

Robert Fisk on the Turkey conflict

Every regional power has betrayed the Kurds so Turkish bombing is no surprise
Investigation into wreck of unidentified submarine found off the coast of Sweden

Sunken sub

Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
Instagram and Facebook have 'totally changed' the way people buy clothes

Age of the selfie

Instagram and Facebook have 'totally changed' the way people buy clothes
Not so square: How BBC's Bloomsbury saga is sexing up the period drama

Not so square

How Virginia Woolf saga is sexing up the BBC period drama
Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

Still carrying the torch

The seven teenagers given our Olympic hopes
The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

The West likes to think that 'civilisation' will defeat Isis...

...but history suggests otherwise
The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

The bald truth

How thinning hair made me a Wayne Rooney sympathiser
Froome wins second Tour de France after triumphant ride into Paris with Team Sky

Tour de France 2015

Froome rides into Paris to win historic second Tour
Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

A new beginning for supersonic flight?

Concorde's successors are in the works 15 years on from the Paris crash
I would never quit Labour, says Liz Kendall

I would never quit party, says Liz Kendall

Latest on the Labour leadership contest
Froome seals second Tour de France victory

Never mind Pinot, it’s bubbly for Froome

Second Tour de France victory all but sealed
Oh really? How the 'lowest form of wit' makes people brighter and more creative

The uses of sarcasm

'Lowest form of wit' actually makes people brighter and more creative
A magazine editor with no vanity, and lots of flair

No vanity, but lots of flair

A tribute to the magazine editor Ingrid Sischy
Foraging: How the British rediscovered their taste for chasing after wild food

In praise of foraging

How the British rediscovered their taste for wild food