Good news on inflation sent the London stock market sprinting towards its previous peaks yesterday, as some of investors' interest rate fears subsided.
The FTSE 100 index spent much of the last half hour of trading flirting with its all-time closing high, ending just short but still up 142 points at 6,100.2. That was the first close above 6,100 since early April.
Retail prices actually fell in June, as some of the previous strength in seasonal food prices subsided. Both the headline and the underlying rate of inflation fell by more than expected - to 3.7 per cent and 2.8 per cent respectively. The inflation news followed the release of the British Retail Consortium survey, late on Monday, which showed a 0.1 per cent month-on-month fall in retail sales.
The data fuelled hopes that the Bank of England's monetary policy committee would decide to leave interest rates at the their current level of 7.5 per cent. Short sterling futures, the market's vehicle for speculating on interest rates, rose on the day.
Footsie fell 1.5 points in the first few minutes of trading, but never looked back after the data was released. A strong start for Wall Street, where the Dow Jones Industrial Average was up 100 points when London stopped trading, reinforced the bullish mood. At its best, Footsie was 153 points ahead at 6,111.2.
The market is not yet out of the woods, however. Average earnings numbers, released today, will provide further evidence of inflationary pressures and will be watched closely by the monetary policy committee.
Mr Philip Collins, UK equity strategist at HSBC Securities, said the market had suffered recently from bad news on the domestic economy and the Far East. "It is significant that the first sign of optimism has sent the market higher," he said. "There's a lot of cash around and it doesn't take much to get the market flying."
However, Mr Collins thinks earnings estimates are still too high and the market will start to worry about downgrades in the second half of 1998.
The smaller stocks, however, failed to join in the rally, weighed down by profit warnings from Albert Fisher and Flying Flowers. The FTSE SmallCap index rose only 0.2 to 2,576.8. The FTSE 250 index of midcap stocks gained a modest 20.1 to 5,658.8.
Meanwhile, there remains some mystery about Monday's trading in Coca-Cola Beverages, a new issue. The saga distorted overall market volume.
At 5 p.m. on Monday, more than 766 million shares were shown as being traded on the British market; by 6 p.m. the figure dropped to 601 million. In the meantime, details of trading in Coca-Cola Beverages vanished from the system. Previously, it had been shown as the most active stock, with more than 200 million shares dealt.
