Mid-session boost to dealings

 

SENTIMENT in London was transformed in mid-session by the latest economic news from the US. That news engineered a sharp rally in US Treasury bonds and on Wall Street where the Dow Jones Industrial Average jumped almost 100 points within 30 minutes of the opening.

Big gains in the latter, which rose a point at the opening, lent good support to gilts which had suffered from a larger than expected trade deficit and a mildly disappointing outcome to the auction of £2.5 billion sterling worth of 10-year gilts.

The FTSE 100 index, which lost the 4,200 level in mid-morning, gathered itself after the US news and galloped ahead to close 25.4 higher at 4,237.4, less than a point off the day's best.

Demand did not span the whole of the market, however. The FTSE 250 gave a disappointing performance, sliding 10.4 to 4,582.7. The SmallCap recorded a minor gain, up 0.5 at 2,292.4. The encouraging US news was from the employment cost index for the December quarter which was up 0.8 per cent on the third quarter and 2.8 per cent year-on-year.

Although in line with consensus forecasts, the news was greeted with widespread relief on both sides of the Atlantic. Dealers pointed out that the US Federal Reserve's Open Market Committee pays particular attention to the employment cost index as part of its interest rate decision-making process.

The next meeting of the FOMC is scheduled to start next Tuesday and there had been twitches of unease in the US recently about the possibility of the Fed nudging rates higher.

Wall Street, which has fallen heavily in recent sessions, bounced strongly, with the Dow Jones Industrial Average climbing 99 points shortly after the opening. The Dow had fallen 223 or 3.2 per cent, from its record closing high of 6,883,9 over the previous four sessions.

A rise in the US consumer confidence index, to 116.8 from 114.2, briefly took the edge off gains, but thereafter made little or no impact on sentiment.

Mr Richard Jeffrey, group economist at Charterhouse Bank, said the employment cost index numbers would not preclude a rise in US rates over the next few months, only delay such a move. He said London's equity market "wants to rally on any good news. It wants to set new highs".

Yesterday's turnover, at the 6 p.m. reading, was 875.2 million shares, well up on Monday's 685 million. Retail business on Monday fell to £748.3 million sterling.