Share markets scale new peaks

DIANE COYLE

Economics Correspondent

Share prices in London closed at a new record yesterday, powered by a further surge on Wall Street, and hopes of lower interest rates. Investors shrugged off turmoil in the Conservative Party.

The London rally came on the back of new optimism about the prospects for a deal between President Clinton and Congress on the budget, which sent US shares higher again yesterday. The Federal Reserve is firmly expected to cut interest rates as a reward for an agreement ending the stalemate that has partially closed the Federal government since the middle of December.

The FT-SE 100 index ended the day nearly 28 points higher at 3715.6. This was lower than the day's highs, but the tone was set in the morning by euphoria over Tuesday's 60-point gain in the Dow Jones index. A weak survey of manufacturing also helped by confirming interest rate hopes.

The Dow finished the day at 5194, up 16.6. By the time London closed, many European bourses had already set their own records. Frankfurt ended just below its all-time high, while Paris was sharply higher.

Since the beginning of 1995 shares in Britain and the US have made spectacular advances. The FT-SE 100 index has climbed by more than 650 points, a 21 per cent increase. Wall Street has risen by 35 per cent. A widespread belief in the ''January factor'', whereby the stockmarket's performance in the first month sets the tone for the rest of the year, has also contributed to market optimism. However, many analysts are cautious about prospects for 1996.

Mark Brown, chief strategist at the broker Hoare Govett, said: ''We are now in the middle of a speculative bubble driven by liquidity. Like all bubbles, it will burst at some stage.'' He added that London would underperform other markets because political uncertainties loomed so large this year.

The dollar bounced to its highest level against the yen for more than three months. Most analysts expect the US currency to move higher than the level of 104.6 and DM1.4421 it had reached by midday yesterday in New York. ''This year the dollar will go up and stay up,'' said Paul Chertkow at the investment bank UBS.

The budget talks resumed yesterday, with reports that Tuesday's meeting had been productive. The approach of President Clinton's State of the Union address later this month and the start of the presidential primaries are seen as powerful motives to end the stalemate.

''The overwhelming feeling is that we're going to get a credible budget agreement,'' said Kevin Flanagan, an analyst at Dean Witter Reynolds in Wall Street. At Chemical Bank, Malcolm Barr added: ''US bonds and equities seem to be dragging the dollar up''.

The market consensus is that the dollar will climb past 110 and DM1.55 during the course of this year. Mr Barr said the US markets looked attractive to international investors.

The financial markets' strength is driven by expectations of further cuts in interest rates by the Federal Reserve. It shaved a quarter point off its key Federal Funds rate last month.

''That move was a downpayment. The Fed will do more if there is a budget deal,'' Mr Chertkow said.

The Fed cut rates from 5.75 to 5.5 per cent last month. Its next policy meeting takes place on 30-31 January.

The dollar reached 104.65 on 20 September, up from a low of 80.63 six months earlier - thanks to co-ordinated action by the G7 industrial countries. It touched DM1.50 in September.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Ashley Barnes of Burnley scores their second goal
footballMan City vs Burnley match report
News
news
News
Sir James Dyson: 'Students must be inspired to take up the challenge of engineering'
i100
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Catherine (Sarah Lancashire) in Happy Valley ((C) Red Productions/Ben Blackall)
TV
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

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?