STERLING moved even higher against the deutschmark, yesterday. Government bonds recovered but equities petulantly refused to join the party.
The London market did shrug off some of the worst excesses of gloom. It also appeared to ignore the latest British economic statistics as well as a much feared US purchasing managers index. However, the FTSE 100 index still ended the day 8.6 lower at 3,739.2.
On the other hand, some economists were surprised the index did not fall further, considering the background. On Friday, the Dow Jones Industrial Average fell 50 points amid growing concern about inflation, and the possibility that the Federal Reserve might raise interest rates. And, over the weekend, press comment had been unenthusiastic about the British economy.
At the start of trading yesterday, the Footsie was off almost 18 points. The release of MO the main element of which is notes and coins in circulation signalled a slight pick up in consumer spending.
The MO figure implied strength in the consumer side of the economy. But it coincided with the latest survey from the Chartered Institute of Purchasing and Supply, which showed that last month manufacturing suffered its biggest slide for more than 31/2 years.
The pressures on manufacturing, as shown by reduced output and jobs, lower order books and a build up of unsold goods, will have been increased by the recent strength of the pound against the deutschmark and dollar.
The strength of sterling and the weakness of manufacturing led at least one economist to raise the possibility of an interest rate cut when the Chancellor of the Exchequer, Mr Clarke, meets the governor of the Bank of England,
Mr George, tomorrow.
The market did, in fact, rally during the morning but its sights were not set on good news and as the time approached for trading to begin on Wall Street, London's nerves began to jangle again.
Afternoon business was patchy with dealers waiting for inflationary signals from the US purchase ing managers' survey. Even those signals did not material the market failed to take heart.
Futures traded at a discount to the cash market all day and share turnover of 644.9 million by 6.00 p.m. had a Monday feeling to it.
Takeover premium was virtually non existent in the Footsie although most water stocks particularly Wessex were up. The only upward momentum came from BT, where the shares rose in response to a lenient regulatory review and contributed almost five points to Footsie.
Second line stocks performed slightly better with the help of a sparkling performance from Eurotunnel. The FTSE Mid 250 index lost only 4.5 at 4,505.5.
