Wisdom trade at a premium in stormy markets

Article Abstract:

There could be major changes in British financial markets in 2000, with rising interest rates, slower US growth, and rises in British equities at similar levels to profit growth. Telecoms and internet stocks rose in Nov and Dec 1999 and fell in early Jan 2000, and this has left the British market unbalanced. Inflation is unlikely to rise, since price falls are likely for a number of sectors, such as beer and cars. This means that yields appear attractive, and US bonds may also have a beneficial effect on British bonds.

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Bank of England shares the good news

Article Abstract:

British interest rates look set to rise by 0.25% to 6% in Feb 2000, despite the strength of pound sterling. The monetary policy committee of the Bank of England is more concerned about the high rate of economic growth. This gives high real returns for safe assets, though equity returns should be even higher. Stock prices could initially fall due to anticipation of higher interest rates. An early rise in rates means that there will be less need to raise them later on, while a later rise may also mean a larger rise, so an early rise means that valuations should be higher over the longer term.

Stock-exchange, Stock exchanges

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Credibility pays

Article Abstract:

United Kingdom interest rates are controlled by the Bank of England, which is seeking to control inflation. Short-term rates are higher than long-term rates and this reflects the Bank's credibility. UK stock and bond prices could perform better than overseas bonds and stocks, argues NatWest Markets. Bond and stock yields are likely to drop due to the credibility of monetary policy. A rise in interest rates would impress markets with the Bank's commitment to controlling inflation.

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