"Progress is going to be difficult in the days ahead," said Richard Kersley, an equity strategist at Credit Suisse First Boston. "There is a move to defensive, domestic stocks."
The FT-SE 100 index fell 3 per cent to 5,769.8 last week, led down by oil stocks as crude oil prices slumped on concern that recent pledges by oil producers to cut back output won't be enough to overcome a world supply glut and demand from Asia is far weaker than expected. Opec meets on 24 June to discuss whether to make production cuts.
British Steel is also likely to be active after reporting earnings on Monday. "British Steel is a great bellwether in terms of those stocks exposed to foreign currency risk," said Paul Maguire, manager at Lincoln Investment Management. Gilts are expected to be little changed with traders unlikely to draw conclusions on the direction of interest rates from a raft of economic reports.
A report on the labour market, due Wednesday, will be the most important, after the Bank of England cited rising wages and falling unemployment as reasons for its unexpected rate increase on 4 June. Other bulletins are expected on retail price inflation, government borrowing, retail sales, money supply growth and bank lending.
"The wage numbers are the big hurdle for gilts," said Kevin Adams, a gilt strategist at Barclays Capital. "The danger is they'll be bad again, but the rest of the release should be reasonably helpful for gilts.
"Barring any nightmare numbers, the downside for the market will be limited, but there could be some lingering doubts about interest rates."
The report on March earnings is expected on Wednesday and will need to show growth moderating from February's 4.9 per cent annual rate to convince investors that interest rates won't be increased again.
Economists expect, however, that earnings growth probably accelerated to 5.1 per cent in March and that rates will stay at 7.5 per cent until the end of the year.
"I expect rates are going to stay high for longer than a lot of people think," said Tony Plummer, a fund manager at Guinness Flight Hambro Asset Management.
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