London market: Rate rise casts cloud over shares
Sunday 12 September 1999
Diageo, Kingfisher and other companies reporting earnings may gain, though, on signs that growth is boosting profits.
Unemployment statistics for August are released on Wednesday. In July the number of people out of work fell to a 19-year low, suggesting the economy is expanding and pushing wage growth higher. The Bank of England Monetary Policy Committee said the tightness of the labour market was one of the reasons it unexpectedly raised the benchmark interest rate by a quarter point to 5.25 per cent last week.
"The labour market is one area the MPC will be scrutinising closely," said Steven Wright, an equity strategist at Credit Suisse First Boston. He recommends investors sell shares of companies most reliant on economic growth and buy defensive stocks such as utilities and tobacco companies.
Average earnings will also be published the same day and will be closely watched. "Prices ticking up aren't exactly going to inspire confidence. There's a risk average earnings moved higher again, which the market won't take kindly to," said Charlie Diebel, bond strategist at Societe Generale.
Most analysts expect higher rates by the end of the year, with two predicting a rise in October. Gilt yields climbed to their highest level in 13 months last week, with the benchmark 10-year government bond yield surging 26 basis points to 5.55 per cent.
The FT-SE 100 index fell 2.23 per cent to 6,191 last week. The construction industry fell the most, down 4.5 per cent, as the rate rise sparked concern that it will be the first in a series that will dampen the housing market, reducing profits of builders.
Banks slipped 2.3 per cent as a group and insurers declined 4.8 per cent, sensitive to higher rates that could depress demand for borrowing and reduce the value of bond portfolios.
Diageo, the spirits producer, reports full- year earnings on Thursday. The shares are currently recommended by Goldman Sachs with a 12-month price target of 953p. Kingfisher will report half-year earnings on Tuesday. There is speculation that the company is considering a pounds 350m offer for Norwegian electronics retailer Elkjoep as part of its drive into Europe.
Oscar Pistorius trial: Defence's own witness contradicts athlete's version of events
Oscar Pistorius trial: The case against Oscar Pistorius – and why the prosecution claims his story doesn't add up
South Korea ferry: Captain Lee Joon-seok could face criminal investigation as over 280 remain missing
Peaches Geldof dead: Private funeral for the family and friends of the socialite will take place next week
Shropshire criminals ‘using unmanned drones and infrared cameras to find illegal cannabis farms’ – and then steal from the growers
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
US Navy christens huge $3 billion destroyer ship USS Zumwalt that appears as a fishing boat on enemy radar
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
Nigel Farage on Have I Got News For You: Ukip leader ridiculed over expenses and party 'fruitcakes'
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
- 1 Poveglia: 'World's most haunted island' up for sale...is anyone brave enough to buy it?
- 2 The Hobbit: There and Back Again set for possible title change
- 3 Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'
- 4 24 people applied for the 'world's toughest job', here are their interviews
- 5 Andre Johnson: Wu-Tang Clan-discovered rapper severed his penis and jumped from LA building
iJobs Money & Business
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£221.25 per week: QA Apprenticeships: This company is a well established Inter...
£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...
£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...