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THOUGHTS ON THE GILT MARKET FROM AMP

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Friday's US employment data surprised markets at the end of last week with a significant fall in the unemployment r...
Friday's US employment data surprised markets at the end of last week with a significant fall in the unemployment rate in December to 5.4%, a drop of 0.2% on November. If the current downward trend in the US unemployment rate continues, it seems set to drop below 5% by mid-1995.

However, the response from international bond markets has been fairly muted. It is likely that an imminent US interest rate rise has already been factored into the market, and strong labour market statistics only act to reinforce what traders already expect.

Indeed, there is a growing belief that another half percentage point rise in US interest rates will come with the Federal Reserve's next policy making committee meeting on January 31.

At home, UK data released this week is not expected to have such a significant impact on the domestic gilt market as December's inflation and employment statistics to be released next week. However some market interest will be generated by November's industrial production figures to be released on Wednesday.

These will give an indication of how fast the economy was growing close to the end of 1994. Survey data suggests that manufacturing output remained strong throughout the fourth quarter.

If production data does indicate a vibrant industrial sector this is likely to put downward pressure on gilt prices, as this would be an additional impetus to the pace of economic growth and subsequent inflationary pressures.

The City consensus forecast is for a 0.3% month-on-month rise in industrial production in November following an increase a 0.3% month-on-month.

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