The FTSE 100 made a tepid start on Monday on some weak Chinese export data and comments from US Treasury Secretary Janet Yellen that she would not be averse to higher interest rates because it would signal the economy was on the mend.
While this seems a perfectly logical and reasonable statement, it contains a hint of menace for the markets given what rising rates normally mean for the performance of equities.
“This hint of menace might become something more genuinely frightening for investors if it is followed by a high level of inflation when the US figures are published later this week,” says AJ Bell investment director Russ Mould.
“Very quickly the issue of rising prices and their impact on monetary policy could become front and centre again, after being pushed to the back of the market’s mind by a US jobs report on Friday which, while not terrible, presented a fragile enough picture of employment to suggest the US Federal Reserve would maintain low rates and financial stimulus for longer.
“The 8.2% advance in the Halifax House Price Index demonstrates the UK housing market is still in runaway mode supported by the stamp duty holiday and people looking to move for more space in different locations in the wake of the pandemic.”