MARKET COMMENT - 21st august 2006
- Bond and equity markets both enjoyed a strong boost last week from a series of economic numbers in the US which encouraged
the view that the Federal Reserve was justified in pausing in its policy of raising US interest rates.
- Foremost among the week’s releases were July consumer and producer price figures, which were at or below market forecasts.
There were also indications of a slowdown in the housing market and in industrial output figures.
- Gross domestic product within the eurozone increased by 0.9% in the second quarter, the strongest quarterly growth rate for six
years, driven by improved performances from the German and French economies.
- Oil prices fell sharply on the week as the ceasefire in southern Lebanon held and OPEC announced that it had no intention of
cutting production for the rest of the year. Crude prices fell around 5% on the week, to their lowest levels in two months.
- The euro was stronger against the other major currencies during the week in the face of weaker economic data in both the UK and
the US.The euro gained against the dollar with the € / $ rate rising from 1.2730 to 1.2800 as a result.
| Table 1 below shows the movements in the main markets 1 Week Return. |
| |
|
Local
Currency |
Euro |
| US |
S&P
500 |
2.8 |
2.2 |
| US |
NASDAQ |
5.2 |
4.5 |
| Europe |
FT/S&P
Europe Ex. UK |
3.0 |
3.0 |
| Ireland |
ISEQ |
2.2 |
2.2 |
| UK |
FTSE
100 |
1.4 |
0.3 |
| Japan |
Topix |
4.0 |
3.8 |
| Hong
Kong |
Hang
Seng |
0.5 |
-0.1 |
| Australia |
S&P/ASX
200 |
2.1 |
0.4 |
| Bonds |
Merrill
Lynch € over 5 yrs |
0.8 |
0.8 |
| Table 2 below shows the movements in the main markets year to date. |
| |
|
Local Currency |
Euro |
| US |
S&P 500 |
4.3 |
-3.6 |
| US |
NASDAQ |
-1.9 |
-9.4 |
| Europe |
FT/S&P Europe Ex. UK |
7.0 |
7.0 |
| Ireland |
ISEQ |
5.4 |
5.4 |
| UK |
FTSE 100 |
5.1 |
6.2 |
| Japan |
Topix |
-0.5 |
-6.4 |
| Hong Kong |
Hang Seng |
16.5 |
7.4 |
| Australia |
S&P/ASX 200 |
6.1 |
1.3 |
| Bonds |
Merrill Lynch € over 5 yrs |
-3.0 |
-3.0 |
Global Equities
The US markets were strong on the week, led by a gain of more than 5% in the technology-heavy NASDAQ
Index.
- Hewlett Packard – HP added over 7% on the week and is up nearly 25% year-to-date. It reported quarterly
earnings figures that beat expectations and announced a $6 billion share buyback. It also gave bullish
guidance for the next quarter.
- Others – Among other strong risers in the technology sector were Microsoft (increasing its share buyback
programme by $16 billion), Advanced Micro Devices and Intel.
- Dell – On the other side of the coin, Dell reported a 42% year-on-year drop in second-quarter earnings and
also announced that the SEC had been investigating it for the past year over accounting issues. The stock is
down around 26% this year.
European markets followed the US upwards, with the technology sector also enjoying a strong week.
-
Tech Stocks – Among the week’s big gainers in this sector were Alcatel (+10%), Ericsson (+9%) and Nokia
(+8%). Chipmaker STMicroelectronics added 10% and Infineon rose 6%.
-
UBS – The Swiss investment bank reported a 47% rise in net profit for the second quarter, easily beating
market expectations.The stock gained over 7% on the week.
-
Financials – The Irish market rose over 2%, with the financials particularly strong. Anglo Irish Bank added
nearly 5%, Bank of Ireland rose over 4% and AIB gained over 3% on the week.
-
Ryanair – As heightened security measures at UK airports persisted, Ryanair lost 1% on the week.
- Japanese market – The Japanese market gained 4% on the week, supported by lower oil prices.The Nikkei
Index broke through the 16,000 barrier for the first time since May on Wednesday.
- Australia – It was a good week for the Australian market. Rising commodity prices helped the big mining
stocks while, on the mergers and acquisition front, Coles Myer, the country’s second largest retailer, gained
12% on Thursday following reports that it had been approached by a possible buyer.
-
Bond markets received a significant boost during the week with the release of weaker-than-expected inflation data in the US.
Eurozone bonds rallied on the news, though running out of steam a little later in the week.The Merrill Lynch > 5 year Index rose 0.8%
on the week.
-
Growth expectations remain at high levels with global GDP forecast to expand by 4.0% in 2006, slightly above last year’s figure of
3.7%.The major central banks have been focused all year on cyclical inflation pressures and strong commodity prices and short rates
globally have risen further.
-
The Fed paused in its policy of raising US interest rates at its recent meeting, leaving them unchanged at 5.25%. Investors still see
some modest additional tightening before year end,with rates peaking for this cycle at close to 5.5%.This expectation remains
dependent on a slowing in the growth rate and no further acceleration in inflation.
-
The Fed paused in its policy of raising US interest rates at its recent meeting, leaving them unchanged at 5.25%. Investors still see
some modest additional tightening before year end,with rates peaking for this cycle at close to 5.5%.This expectation remains
dependent on a slowing in the growth rate and no further acceleration in inflation.
-
Equity markets still remain reasonably supported by a strong earnings’ background and favourable valuations relative to bonds; high
oil prices and tighter liquidity conditions from higher interest rates continue to be a concern and periods of volatility are likely.The
gradual ending of super-easy money policies in Japan deserves attention because of its potential negative impact on various asset
classes.
-
Currently, the funds are close to neutral on both bonds and equities versus the manager average. Sectorwise, positions are pretty
balanced at the moment.Geographically the funds remain underweight Ireland and more neutral in the other regions.
|
