View from City Road: Playing a mysterious game of Footsie

By the time Wall Street opened it seemed highly unlikely that yesterday's precipitous 68.4-point fall in the FT-SE 100 and equally dramatic drop in gilts would turn into a full- scale rout.

Nick Knight, at Nomura, said he would continue to sell the market and chartists insisted that the outlook was disastrous with several important break-points crossed. The FT-SE came perilously close to dropping back through the 3,000 barrier, and if that happened the psychological impact might certainly be sufficient to send it into free fall.

Nevertheless, for the time being it is hard to see why stock prices should be reacting in this way. The immediate cause was the failure of the German bond auction. Certainly, the outlook for interest rates in Germany seems to have worsened significantly since publication of figures showing an explosion in M3 money supply.

Other than that not much seems to have changed. In Britain it has long been the case that the next move in interest rates is more likely to be up than down. In the US the upward trend is already well established.

Judging by recent statements the outlook for corporate profits isn't quite as buoyant as many hoped. Stephen Dorrell also continues to drone on about his completely unproved thesis that high dividends are doing great damage to industrial investment and he is now threatening to do something about it.

All of these things might seem to be reasonable cause for shares to fall, but the market was left scratching around for explanations yesterday. Many dealers confessed to being perplexed.