Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education

Front Page



UK Politics







Talking Point

In Depth

On Air

Low Graphics

Thursday, July 29, 1999 Published at 21:34 GMT 22:34 UK

Business: The Economy

Inflation fears spark market sell-off

Summer madness .. or the end of the bull market?

World stock markets took fright at a possible increase in US interest rates, as American wages grew more rapidly than expected in the April to June period.

London FTSE 100
UK share prices
Dow Jones
World markets
Foreign exchange

Leading stock markets in Europe and America declined by more than 2%, while bond yields increased and the dollar lost value.

In New York, the Dow Jones Industrial Average fell by 181 points to 10,791, while the high-tech Nasdaq index had an even bigger relative fall, down nearly 3% to 2640. Declining stocks outweighed advances by three to one.

Technology stocks were particularly hard-hit, with the Nasdaq index now having declined nearly 10% since the middle of the month.

Small investors saw hundreds or thousands of dollars wiped off their stock values.

Internet stocks did poorly, with now trading at only half its high point of the year. Microsoft also fell on the news that the US government had asked some technology bank to develop plans for its possible breakup.

Inflationary signal

The 30 year Treasury bond declined sharply, falling nearly three quarters of a point and raising the nominal interest rate to 6.07% - well above the short-term US rates of 5% set by the Federal Reserve last month.

The chairman of the Fed, Alan Greenspan, has warned that he will not hesitate to act forcefully and promptly if inflationary pressures appear on the horizon. The increase in US wage costs, by 1.1% in the quarter, was just such a signal that the market was fearing. Mr Greenspan has already raised interest rates once, by 0.25%, in June.

Up until now, inflationary pressures have been benign despite the strong US economy. With that economy now slowing down, as growth fell in the quarter to an annual rate of 2.3%, company profits could come under pressure.

European worries

Stock markets across Europe also took note of the American figures.

The London Stock Market, Europe's biggest, fell by 3%, with the FTSE 100 falling by 179 points to 6117.

In Frankfurt, the Dax index also fell by 3%, dropping 177 points to 5052, while in Paris the Cac 40 lost 122 points to 4306.

The sell-off accelerated as the day went on, as dealers saw little demand for shares, with low volumes during the summer holiday season.

The weakness of the dollar added to the woes of European markets. The weak euro has boosted exports, and its revival could hurt many companies that sell goods to the United States.

The euro finished the day at $1.0711, up nearly a cent over Wednesday's close.

Although high interest rates should be good for the dollar, that effect is being outweighed by the fears about the weakness of the US economy, which could make the strong dollar policy unsustainable.

Advanced options | Search tips

Back to top | BBC News Home | BBC Homepage | ©

The Economy Contents

Relevant Stories

29 Jul 99 | The Economy
What is day trading?

30 Jul 99 | Americas
Atlanta killer commits suicide

29 Jul 99 | The Economy
US growth slows sharply

22 Jul 99 | The Economy
Greenspan spooks tech stocks

21 Jul 99 | The Economy
Tech stocks nightmare

In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree