Tuesday, June 13, 2006

Rates panic wipes £35bn off the FTSE

Rate panic drags stocks to six-month lows

Stocks hit a six-month low as concern over growth and inflation force markets to press the panic button.

Posted by denzil @ 12:52 PM (629 views)
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7 thoughts on “Rates panic wipes £35bn off the FTSE

  • can someone explain (preferably in English) how a falling – or rising for that matter – stock market affects interest rates? – Thanks.

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  • George Monsoon says:

    Inflation pressure from the rest of the world.. and we still won’t raise the interest rates..
    and please quote me on this.. “It’s going to be a huge bang when the bubble bursts on Gordon’s dream”

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  • Thebritishbrickie says:

    you’re BANG ON with that

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  • In response to Beakers question………..

    Stock Markets are a reflection of the potential value of the companies included in that Index.

    So, as inflation rises and therefore the probability of Interest Rates rises become more likely, then the cost of operation for companies increases (in most cases) cost of goods/services/wages/borrowing etc.

    And therefore the anticipated growth of said companies is percieved to slow, therefore reducing their value and so traders sell the stocks, which causes the Index to fall.

    Stock markets do not affect IRs as such. They are a reflection of market conditions. So the fact the markets are falling globally suggest traders are worried that the rises in IRs will affect future growth.

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  • Again speaking as a layman the way I see it is;

    Rising interest rates mean it is more expensive for large business to borrow money making it more expensive to do business and therefore possibly reducing profits, obviously this means investors shy away and sell off.

    Interest rates have a major effect on currency fluctuations and to reduce the risk of profit loss as a result of this, invesotrs tend to sell off overseas “high risk” stocks and shares and essentially bring their money back home.

    Some investors may find it a safer bet to take money out of stocks and shares and invest in a high interest account, why risk trying to get a 5-10% return on global markets in times of uncertainty when I can get a guaranteed 5-6% with money in the bank as a result of the base rate rise.

    I think this is right so far but i know there are also far more complex reasons?

    There are also far more econonically minded folk who post on this web site who i hope will set me straight in my thinking and explain a little further for the rest of us scratching our heads during this interesting time.

    Does this mean stocks and shares investors will turn to property??

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  • The Bald Man says:

    Reply to Geed

    Investors would turn to property if yields were attractive. Because of the low yields in both residential and commercial property I wouldhave thought this unlikely. My guess is they will stay liquid (in cash) or reduce high cost borrowings until the time was right to go back in the market.

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  • Probably also worth making the distinction at this point between intelligent wealthy investors, and those Krusty worshipping idiots jumping onto the bandwagon with BTLs.

    One group has the sense to avoid property, the other doesn’t.

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