The US equity market was the best performing market last week on the back of falling oil prices,weaker than expected inflation
data and positive corporate news. Investors' confidence in a soft landing for the US economy also supported equities.
Minutes from the October meeting of the US Federal Open Market Committee showed that members are still hawkish on inflation.
This led to a pull back in expectations of interest rate cuts in early 2007.
In the US, data showed that US housing starts had declined by almost 15% in October, hitting their lowest level for six years.The
data had little impact on markets.
Oil prices continued to fall last week dropping to below $56 per barrel due to expectations of mild winter weather conditions in
the northern hemisphere. Sentiment towards commodities such as silver and gold also weakened.
Table 1 below shows the movements in the main markets 1 Week Return.
Market
Index
%
Return 10.11.06 to 17.11.06
Local
Currency
Euro
US
S&P
500
1.5
1.7
US
NASDAQ
2.4
2.6
Europe
FT/S&P
Europe Ex. UK
0.3
0.3
Ireland
ISEQ
1.4
1.4
UK
FTSE
100
-0.3
-1.0
Japan
Topix
-0.5
-0.4
Hong
Kong
Hang
Seng
1.5
1.7
Australia
S&P/ASX
200
-0.3
0.1
Bonds
Merrill
Lynch € over 5 yrs
0.1
0.1
Table 2 below shows the movements in the main markets year to date.
Market
Index
%
Return 31.12.05 to 17.11.06
Local Currency
Euro
US
S&P 500
10.6
1.8
US
NASDAQ
8.4
-0.3
Europe
FT/S&P Europe Ex. UK
16.5
16.5
Ireland
ISEQ
17.9
17.9
UK
FTSE 100
10.5
13.2
Japan
Topix
-4.2
-11.4
Hong Kong
Hang Seng
27.0
16.5
Australia
S&P/ASX 200
14.1
9.9
Bonds
Merrill Lynch € over 5 yrs
0.0
0.0
Global Equities
United States
US equity markets performed well across the board last week with technology stocks, in particular, doing well.The
NASDAQ rose 2.4% over the week.
There were a number of new listings in the US with the New York Mercantile Exchange opening at $59 per share before rising sharply to finish the week at $140 per share. Shares in car hire firm Hertz were also offered to investors at $15 per share.The share price rose 4.5% on the week.
US Airways launched an $8 billion bid for bankrupt Delta Airlines.The US Airways share price rose
20% on the news.
The Intel share price rose 7% when Citigroup added the stock to its recommended list.
Europe
European markets performed strongly early in the week on the back of mergers and acquisitions activity. However, the falling oil price took its toll on energy stocks as the week progressed leading to only marginally positive returns overall.
There was speculation that Porsche would launch a takeover bid for Volkswagen. Porsche already
owns 27% of Volkswagen.
Statoil and Norsk Hydro were lower due to the fall in oil prices.The stocks fell 4% and 5%
respectively.
Technology stocks did well supported by strong performances from their US counterparts. Infineon, the German chipmaker was up 5%.
Ireland
The Irish market was up 1.4% on the week with strong returns from market heavyweights CRH , Elan and Ryanair.
Ryanair - The airline was up another 4% last week to €9.80 due to the decline in oil prices to below $56 per barrel.
Pacific Basin
Asian markets in general were strong last week with the exception of Japan and Australia. Australia was
weaker due to a fall in commodity prices.Hong Kong and Singapore reached record highs.
The Japanese market had a difficult week despite upbeat gross domestic product data. Expectations of a
slowdown in exports and capital spending are weighing on market sentiment.
Eurozone Bonds
Eurozone bonds ended the week largely unchanged. Weaker than expected housing data from the US helped prices to hold steady. The Merrill Lynch >5 year bond index rose by 0.1% over the week.
Global Outlook
Growth expectations remain at high levels with global GDP forecast to expand robustly again in 2006, although leading
indicators suggest some growth moderation in 2007.The major central banks continue to focus on cyclical inflation pressures
stemming from strong growth and high oil prices.
As expected, the Fed left rates unchanged at 5.25% at its meeting last month. Investors now believe that interest rates have
peaked for this cycle.However, this expectation remains dependent on a slowing in the growth rate and no further acceleration
in inflation. In recent weeks investors have begun to factor in rate cuts in 2007, but Fed comments have been very cautious and
continue to indicate a very neutral stance on rates.
As expected, the ECB recently raised rates to 3.25% and confirmed market expectations of a further rise to 3.5% before year end.
It gave little indication of its plans for 2007 although the tone of ECB rhetoric continues to be hawkish overall. Bonds have
performed well on the back of better inflation data, some indications that global growth might peak this year and the peaking of
US short rates.
Equity markets still remain reasonably supported by a strong earnings' background and favourable valuations relative to bonds;
tighter liquidity conditions from higher interest rates continue to be a concern and periods of volatility are likely. In the recent
period, positive sentiment towards equities has been boosted by the sharp fall in energy prices from the summer peak and the
surge in merger & acquisition activity.
Currently, the funds are close to neutral in bonds and slightly overweight equities versus the manager average. Sectorwise, the
funds are overweight industrials but other positions continue to be pretty balanced.Geographically, the funds are overweight in
Europe, underweight Ireland and the US 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.
