London market: Rate rise casts cloud over shares
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.STOCKS may decline this week - led by Barclays, RMC Group and other banks and construction companies - on fears that a jobs report will show that higher interest rates are needed to keep inflation under control. Bonds are also likely to fall on concerns about higher inflation.
Diageo, Kingfisher and other companies reporting earnings may gain, though, on signs that growth is boosting profits.
Unemployment statistics for August are released on Wednesday. In July the number of people out of work fell to a 19-year low, suggesting the economy is expanding and pushing wage growth higher. The Bank of England Monetary Policy Committee said the tightness of the labour market was one of the reasons it unexpectedly raised the benchmark interest rate by a quarter point to 5.25 per cent last week.
"The labour market is one area the MPC will be scrutinising closely," said Steven Wright, an equity strategist at Credit Suisse First Boston. He recommends investors sell shares of companies most reliant on economic growth and buy defensive stocks such as utilities and tobacco companies.
Average earnings will also be published the same day and will be closely watched. "Prices ticking up aren't exactly going to inspire confidence. There's a risk average earnings moved higher again, which the market won't take kindly to," said Charlie Diebel, bond strategist at Societe Generale.
Most analysts expect higher rates by the end of the year, with two predicting a rise in October. Gilt yields climbed to their highest level in 13 months last week, with the benchmark 10-year government bond yield surging 26 basis points to 5.55 per cent.
The FT-SE 100 index fell 2.23 per cent to 6,191 last week. The construction industry fell the most, down 4.5 per cent, as the rate rise sparked concern that it will be the first in a series that will dampen the housing market, reducing profits of builders.
Banks slipped 2.3 per cent as a group and insurers declined 4.8 per cent, sensitive to higher rates that could depress demand for borrowing and reduce the value of bond portfolios.
Diageo, the spirits producer, reports full- year earnings on Thursday. The shares are currently recommended by Goldman Sachs with a 12-month price target of 953p. Kingfisher will report half-year earnings on Tuesday. There is speculation that the company is considering a pounds 350m offer for Norwegian electronics retailer Elkjoep as part of its drive into Europe.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments