London market: Rate rise casts cloud over shares

STOCKS may decline this week - led by Barclays, RMC Group and other banks and construction companies - on fears that a jobs report will show that higher interest rates are needed to keep inflation under control. Bonds are also likely to fall on concerns about higher inflation.

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.

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

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Admin Assistant

£12000 - £15000 per annum: Recruitment Genius: An expanding Insurance Brokerag...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders