The downside pressure that has haunted global stock markets for some time, mostly induced by fears of a round of interest rate rises, reappeared yesterday. Ironically for London, the day's domestic economic news was viewed as broadly supportive of the market, but the effect was overwhelmed by bad news from the US.
The preliminary estimate of US gross domestic product for the fourth quarter came in well ahead of the consensus forecast, as did the employment cost index for the same period. Both numbers shocked economists and were interpreted by the markets as probably signalling more than one increase in US interest rates from the current level.
Sentiment in London had improved on Wednesday and Thursday, thanks to some reasonably reassuring economic news, mixed in with a burst of takeover activity. In the background, however, dealers have remained very concerned about the potential for interest rate rises in the US, the euro zone and Britain.
"This is bad news for markets. Get ready for the Fed to shift," was the view of a senior market-maker at one of the big US investment houses.
When the curtain fell on another extremely busy trading session, the FTSE 100 was 65.4 down at 6,375.6, having swung around for much of the day. At its best, the index was up 34 points, reflecting the relatively comforting news on preliminary British gross domestic product in the last quarter of 1999, which came in line with the expectations of the majority of economists.
Early trading yesterday was marked by extreme caution, prompted by Wall Street's erratic showing on Thursday, when the Dow Jones was up 130 points just before London closed, only to reverse direction and close marginally lower. But the response to the news from the US was instant, with Wall Street falling away very quickly and posting a near 200point decline not long after London closed, before stabilising. After a week of big swings in sentiment, the 100 index ended with a 29.3 gain.
The other FTSE indices were also unsettled by interest rate concerns. The 250 index closed a net 39.9 off at 6,271.5, only just above its session low of 6,269.4, leaving the index up nine on the week. The SmallCap, meanwhile, dipped 4.9 to 3,183.7, leaving that index 51.75, or 1.6 per cent, weaker over the week.
