London's equity market, which was already suffering considerable discomfort from the latest warning by Mr Alan Greenspan, had to cope with another severe blow yesterday as Germany's Bundesbank hoisted its repo rate. That move instantly lifted the deutschmark against leading currencies, and hit US Treasury bonds and British gilts. It also put paid to any chances of shares extending a modest rally prompted by news that domestic rates were being left on hold.
The FTSE 100 index, which on Wednesday morning had accelerated to within a point of its previous intra-day record, followed up Wednesday's 43.5 fall with an even worse performance, sliding almost 100 points at one stage. Having stabilised towards the end of the session, Footsie finished 44.3 lower at 5,217.8, extending the fall over the past two sessions to 87.8, or 1.7 per cent.
As usual, the second-liners and smaller stocks suffered less than the leaders, but the FTSE Mid250 still showed a fall of 17.7 at 4,864.6, while the FTSE SmallCap finished 4.2 off at 2,376.1. The FTSE All-Share index lost 17.6 to 2,451.49.
Those moves brought a close to another tempestuous performance by British stocks as global events completely overtook domestic news.
The head of market-making at one leading British securities house said that the message from the US and Germany was unequivocal and that rates in both countries were now on their way upwards.
"It's only a question of timing. With regard to the US, the next meeting of the Federal Reserve's Open Market Committee is on November 12th. Perhaps they'll move then; if not, then certainly at the next meeting," he said.
He also took the view that London would have to consolidate after its run to new peaks in recent weeks. He said the mood around the City's trading desks was increasingly gloomy after the events in the US and Germany, but that few were expecting a sizeable correction.
Other bearish factors were also making themselves felt. Of these, the shift to order-driven trading on Monday week was leading to growing nervousness among dealers worried about the potential for system failure in the event of a big market slide.
Turnover in equities totalled 826.2 million shares, down on the levels of the past couple of sessions.
