Equity markets advanced last week as investor attention turned towards benign US employment data and the prospect that an
economic slowdown in the US would mean the end of interest rate increases.
The US unemployment report showed a slight decline in unemployment in August to 4.7%. However, there was weak numbers on
the housing market with US existing homes sales down 7%.
The Eurozone economy recorded its fastest growth rate in six years in the second quarter with a 0.9% rise in output.The European
Central Bank left rates on hold on Thursday as anticipated but expectations of a rise in interest rates at the next meeting increased.
The Japanese yen continued to fall last week against most other major currencies as a result of the weak inflation data. In the UK,
sterling rose after the release of strong housing and retail spending data.
Oil prices were down 4% on the week to just under $70 per barrel. There was little change on the geopolitical front with sanctions
against Iran likely to be deferred. US oil inventories were also higher than expected.
Table 1 below shows the movements in the main markets 1 Week Return.
Market
Index
%
Return 25.08.06 to 01.09.06
Local
Currency
Euro
US
S&P
500
1.2
0.6
US
NASDAQ
2.5
1.8
Europe
FT/S&P
Europe Ex. UK
1.3
1.3
Ireland
ISEQ
2.8
2.8
UK
FTSE
100
1.2
1.6
Japan
Topix
0.8
0.4
Hong
Kong
Hang
Seng
2.8
2.1
Australia
S&P/ASX
200
1.5
2.3
Bonds
Merrill
Lynch € over 5 yrs
0.5
0.5
Table 2 below shows the movements in the main markets year to date.
Market
Index
%
Return 31.12.05 to 01.09.06
Local Currency
Euro
US
S&P 500
5.0
-3.2
US
NASDAQ
-0.6
-8.3
Europe
FT/S&P Europe Ex. UK
8.3
8.3
Ireland
ISEQ
9.9
9.9
UK
FTSE 100
5.9
8.2
Japan
Topix
-1.0
-8.1
Hong Kong
Hang Seng
17.1
7.6
Australia
S&P/ASX 200
7.0
3.1
Bonds
Merrill Lynch € over 5 yrs
-1.5
-1.5
Global Equities
United States
US markets moved higher last week driven by upbeat corporate news and a slight decline in unemployment.
Retailers - Retailers performed well due to strong sales data from a number of big players.Nordstrom rose
12% after it announced a 7% rise in sales in August. Amazon jumped 13% on news that it is to buy back $500
million of its shares.
Ebay - Internet auction group Ebay jumped 11% helping the NASDAQ to rise 2.5% on the week.Google is to
sell advertising on Ebay's wites outside the US. Ebay agreed a similar deal with Yahoo earlier in the year.
Europe
European markets rose over 1% on the back of upbeat economic growth data from the region.
EADS - The aerospace group rose over 3% following reports that the Russian bank Vneshtorgbank had
acquired a 5% stake in the group. Investors speculated that the news could result in new orders from
Russia.
KBC - The Belgium group saw its shares fall almost 5% when it issued a profit warning for the second half
of the year.
Unilever – The consumer products group announced the sale of its European frozen foods business to
Permira for €1.7bn.
Ireland
C&C - The Irish market rose almost 3%, with C&C particularly strong.The share price was up over 12% on the
week due to excellent results for the first half of the year driven by the success of the Magners brand.
Ryanair - The stock added 7% on the back of falling oil prices. The airline also announced that it is to allow
passengers to use their mobile phones on board flights. Ryanair will gain commission for any calls that are
made.
CRH – The construction company rose over 6% when it reported slightly above consensus H1 results with
operating profits up 38%.
Pacific Basin
Export stocks - Japanese export stocks did well last week on the back of a sharp decline in the yen. Canon
rose over 2% as it derives more than 75% of its sales from outside the Japanese market.
Hong Kong - The Hang Seng index rose almost 3% underpinned by strong performances from property
and banking stocks. BOC Hong Kong rose almost 4% when it delivered better than expected first half
profits.
Eurozone Bonds
Bond markets made ground last week despite strong Eurozone economic growth and warnings on inflation from the European Central
Bank when it kept Eurozone rates on hold on Thursday. Bonds were supported by the continued emergence of weak housing data
from the US indicating that the US economy is slowing.The Merrill Lynch > 5 year Index rose 0.5% on the week.
Global Outlook
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 now
believe that interest rates have peaked for this cycle.This expectation remains dependent on a slowing in the growth rate and no
further acceleration in inflation.
The ECB recently increased rates to 3%, as fully expected by the market. Expectations of future hikes haven't changed much since
then. Investors still expect rates to end this year between 3.25% and 3.5%. Bond prices have taken some comfort of late from wellbehaved
underlying inflation data and the thought that growth might peak in 2006.
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 are underweight Ireland and the US (slightly), marginally overweight in Europe
and more neutral in the other regions.
Philip O'Reilly & Co Ltd., trading as "Philip O Reilly Property Plus" is regulated by the Financial Regulator as a Multi Agency Intermediary & Mortgage Intermediary in respect of Mortgages & Financial Services. Property Services are not regulated by the Financial Regulator.
