Rate cut hopes boost shares
HOPES that the Chancellor and the Governor of the Bank of England will sanction another cut in interest rates tomorrow helped yesterday to push the stock market sharply higher.
The FT-SE index of 100 leading London shares closed 46.9 points higher at 3,328.1, although trading was thin, with institutional investors taking little part. The June short sterling future rose from 94.83 to 94.92, virtually pricing in another quarter-point base rate cut.
The market was helped by a calmer mood in world bond markets following last week's tumbles. The Bundesbank announced a variable rate repo to provide liquidity in the banking system, which most analysts expect to result in a fall of 0.05 of a point in its key repo interest rate, closely related to market rates.
Gilts rose on the day, buoyed by rallies in the US and German government debt markets. The Bundesbank's move raised hopes of cuts in European interest rates combined with some delay before the next increase in US rates.
The markets also took cheer from fresh evidence that consumer spending and factory output are maintaining their momentum as April's tax increases approach. The narrow measure of money supply M0 - cash plus banks' balances at the Bank of England - grew by an unexpectedly rapid 0.9 per cent last month, lifting the annual rate of increase from 5.3 to 5.5 per cent.
Growth in notes and coins is seen as a good indicator of high-street spending. Michael Saunders, of Salomon Brothers, said the figures did not suggest that the recent focus on rising taxes had had a significant dampening effect on consumer spending.
View From City Road, page 30
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