Inflation, sales data hit equities

Domestic economic news about inflation and retail sales halted a promising start by London's stock market yesterday. But by the close of trading, the damage remained light and dealers pointed to the relative stability underneath the market.

That reflected a much quieter performance by Far Eastern markets, where Tokyo edged higher, despite a big fall in shares in Yamaichi, one of the big four Japanese stockbrokers. Hong Kong, recently the cause of extreme turbulence in global markets, also managed to record a minor gain on the day.

Wall Street gave little cause for concern, slipping back only 28 points on Monday and opening marginally higher yesterday. The US bond market was closed for Veterans Day.

The FTSE 100 index finished the session a modest 13.1 easier at 4,793.7 while the lesser indices also registered small falls. The FTSE Mid-250 dipped 5.2 to 4,635.6 and the FTSE SmallCap closed 0.9 off at 2,309.7.

The day began well enough, with Footsie posting an early 17point rise amid relief over Far Eastern markets. But the advance was stopped in its tracks by the data from the British Retail Consortium on high street sales, and official inflation figures.

Retail sales rose by 5 per cent last month on a like-for-like basis, a rise seen as worryingly strong by some economists.

Worse was to come with the inflation data, which showed headline inflation up 3.7 per cent over the past 12 months and the core figure rising 2.8 per cent over the past year.

Footsie immediately came under pressure, the earlier 17point gain quickly transformed into a loss of 51.8 in just over an hour. Later on, Footsie was close to level on the day but it slipped back just before the close.

Some of the more cautious economists said the economy is growing too fast and needed to be reined in further, despite last week's 25 basis points rise in British interest rates.

It was also pointed out that markets have still to cope with today's meeting of the US Federal Reserve's open market committee. Some expect the FOMC to recommend a rise in US interest rates, a move which is bound to have a negative impact on Wall Street and, therefore, across other markets.

"Wall Street has had to put up with plenty of problems from overseas in the recent past - now might be the moment of truth if the Fed hoists US rates," said one observer.

Traders in London remained cautious about short-term prospects, taking the view that the market felt trapped in the 4,700 to 4,800 range. "We'd be much happier and there would be much keener interest from the institutions if the market was trading off the 4,500 level," said a senior dealer at one big European securities house.

The market was also braced for today's Bank of England's quarterly inflation report.