City expects market to rally after sharp drop
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Your support makes all the difference.EQUITY strategists expect the stock market to regain some of its poise this week following Friday's blood-bath, which saw the FT-SE 100 index fall 63.4 points - its sharpest correction in more than a year. An 18.45- point recovery on Wall Street after London had closed on Friday night is likely to help.
City analysts said the outlook for European stock and bond markets depends crucially on the market for US Treasury bonds; at home, they will also be considering the latest economic indicators and prospects for a cut in base rates to accompany the 30 November Budget. 'The US Treasury bond market is the absolute key in the short term,' said Robin Aspinall, at broker Panmure Gordon. 'We should have seen the worst for the week. If we haven't, then it is really nasty.'
Nicholas Knight, at Nomura, expects continued turbulence for some weeks to come, though he has not altered his long-term bull stance.
Fears that strengthening recovery will prompt the Federal Reserve to raise interest rates have threatened to halt the US bond market's year-long rise. This - together with falls in Tokyo - has depressed world markets. Nick Stamenkovich, of DKB International, said he expected the yield on the 30-year US bond to rise towards 6.5 per cent, having reached 6.25 per cent after Friday's strong US employment figures.
'The US bond market and the Japanese equity market are both overvalued in fundamental terms,' said Chris Dillow, of Nomura Research. He added that the British market was more attractive on fundamentals and that the market could be surprised by good factory- gate inflation figures tomorrow.
Peter Chambers, global strategist at James Capel, said British inflation remained subdued, citing Sainsbury's announcement of price cuts on products accounting for 10 per cent of its turnover.
Simon Briscoe, bond analyst at Warburg Securities, said the gilts market - another casualty of the fall in the US bond market - should be able to break away as attention focused on the Budget.
Another weak manufacturing output figure, due on Friday, would go down well because it would add to the pressure for a cut in base rates.
Jeremy Warner, page 2.
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