Recovery fears spread from bonds to equities

The sharp 15% or so fall in UK equities over the last month appears to have reflected a combination of both fading hopes of economic recovery and concerns that policymakers are relatively powerless to provide the global economy with further monetary or fiscal stimulus. The falls in equity prices have, however, left them looking more consistent with government bond yields, which started to fall earlier this year in response to the weak economic news. 10-year gilt yields now stand at close to 2.5%, their lowest level in at least fifty years. In light of recent market movements, we have revised our UK market forecasts. We now expect 10-year yields to stay around 2.5% this year (down from 2.75%) and for the FTSE 100 to finish the year around the 5,000 mark.