INTERNATIONAL MARKETS: LONDON: No tills-a-ringin'

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The Independent Online
UK stocks are expected to slip this week, led by retailers amid concern that pre-Christmas sales won't set the tills a-ringin'. Turmoil in Asian markets could hurt exporters' shares but should help bonds to rise even though economic reports may not be as supportive as of late.

"The ongoing problems in Asia should see bonds generally retain the safe-haven bid we have seen this week," said Tim Harris, gilt strategist at WestLB. "But the domestic data might not be so good for gilts."

Next, the clothes retailer, fell 8.9 per cent last week, and Marks & Spencer slumped 7.4 per cent as the FT-SE 100 fell 1.9 per cent on the week.

"Normally, retail shares are dumped after Christmas when sales disappoint," said Robert Buckland, equity strategist at HSBC James Capel. "This year, though, it looks like some have started already."

Economic bulletins due this week are expected to confirm falling sales. On Wednesday a report on British retail sales is likely to show a decline of 0.9 per cent in November from October. Analysts said the fact that Christmas falls on a Thursday this year may have helped to delay buying.

"It's been lacklustre so far and this year everyone might be jamming in all their shopping in those last three days," said Louise Nicholson, analyst with Albert E Sharp.

Asda, the supermarket operator, is due to release earnings on Thursday. Analysts expect earnings per share to be up to 4.3p from 3.9p last year, and that the company will clarify whether it will bid for Safeway. Safeway gained 5.9 per cent last week, the largest percentage gainer.

MFI, the brewer Greenalls and Securicor also are due to release earnings.

UK stocks could also be affected next week by domestic reports on public sector borrowing, money supply and unemployment numbers. The key economic release for gilts will be Wednesday's labour market report. If average earnings were to increase, it would reignite concern about how high official interest rates are headed, undermining gilts.

The benchmark 7.25 per cent 10-year UK government bond rose on Friday and its yield fell 1 basis point to 6.27 per cent. Over the week it fell 26 basis points.

"I think there was some profit-taking in gilts on Friday afternoon after the rally we've seen this week," said Mr Harris at WestLB. "There's probably some nerves in the market about next week's numbers."

Hopes are rising that interest rates are near their peak. "The softer economic data of late has led to some serious scaling back of rate expectations," said Adam Chester, treasury economist at the Halifax.

"I think the market has now got it right in expecting just one more quarter- point hike early next year."

Copyright: IOS & Bloomberg

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