Equity Markets Gain
Most equity markets ended the week in positive territory as expectations of an upcoming US interest rate cut lent support to
global equity markets.
Economic data
However, disappointing US economic data and fresh sub-prime worries kept investors on their toes. US existing home sales fell to
their lowest level on record in September while US consumer confidence data also came in weaker than expected.
Currencies
Weaker US economic data, surging oil prices and expectations that the Fed will cut interest rates this week resulted in further
weakness in the US dollar, causing it to fall to a record low against the euro. The €/$ rate ended the week at 1.43.
Oil Price
Oil prices recorded another 3% rise last week as Middle East tensions escalated. Turkey threatened military action against Kurdish rebels in northern Iraq while the US announced a new round of sanctions against Iran. Iran is the second largest producer in OPEC. The price hit a record of $92 per-barrel during the week, before easing slightly to finish at $91.
Table 1 below shows the movements in the main markets 1 Week Return.
Market
Index
%
Return 19.10.07 to 26.10.07
Local
Currency
Euro
US
S&P
500
2.3
1.4
US
NASDAQ
2.9
2.0
Europe
FT/S&P
Europe Ex. UK
0.6
0.6
Ireland
ISEQ
0.9
0.9
UK
FTSE
100
2.0
1.2
Japan
Topix
-1.1
-1.1
Hong
Kong
Hang
Seng
3.2
2.3
Australia
S&P/ASX
200
-0.1
1.5
Bonds
Merrill
Lynch € over 5 yrs
0.4
0.4
Table 2 below shows the movements in the main markets year to date.
Market
Index
%
Return 31.12.06 to 02.02.07
Local Currency
Euro
US
S&P 500
8.3
-0.8
US
NASDAQ
16.1
6.4
Europe
FT/S&P Europe Ex. UK
7.1
7.1
Ireland
ISEQ
-16.4
-16.4
UK
FTSE 100
7.1
2.9
Japan
Topix
-6.4
-10.5
Hong Kong
Hang Seng
52.3
40.1
Australia
S&P/ASX 200
18.2
25.9
Bonds
Merrill Lynch € over 5 yrs
0.9
0.9
Global Equities
United States
USDespite a good deal of volatility, US equities put in a strong performance last week due to expectations of interest
rate cuts and some strong earnings results, particularly in the technology sector.
Microsoft - Microsoft helped to spur a rally in the technology stocks after it delivered a stellar set of third quarter
earnings results with a 27% increase in revenues. Microsoft shares rose 16% over the week.
Financial stocks - Financial stocks experienced volatility after Merrill Lynch announced a $7.9 billion write down
due to sub-prime losses and a $2.2 billion loss in the third quarter. Bank of America announced that it is to cut
3,000 jobs in its corporate and investment banking divisions.
Europe
European stocks were supported by upbeat earnings data particularly in the telecoms sector.
Telecoms – TeliaSonera and France Telecom both beat earnings expectations and saw their share prices rise by
10% and 6% respectively. Deutsche Telekom, Vodafone and Telecom Italia also bounced.
ABB – Swiss engineering group ABB beat expectations when it reported a 60% rise in quarterly earnings year on year on
the back of strong demand for power generation infrastructure.
Ireland
The Irish market ended the week in the black as most of the big players stabilised. Anglo Irish Bank was the
exception as continued negativity regarding commercial property in the UK saw its share price decline by 5%.
CRH – CRH’s share price bounced back despite fears of a slowdown in its construction end markets. Stronger
pricing expectations in US aggregates offered support to the stock, as well as stock valuations having only been
this low twice in the last 20 years.
Pacific Basin
Hong Kong was a strong performer in Asia last week rising 3% to end above the 30,000 mark for the first time.
Most other Asian markets also advanced but Tokyo and Shanghai fell back.
Tokyo – Yen strength weighed on Japanese export stocks during the week and the Japanese market fell by 1%.
India – The Indian market rose 9.3% on the week as the regulator moved to allow more overseas funds access to
the market.
Eurozone Bonds
Bonds prices rose last week supported by expectations of a cut in US interest rates. Trading was volatile with much of the
movement in bond markets determined by equity market events. The Merrill Lynch >5 year government bond index ended the
week 0.4% higher.
Global Outlook
Global growth has been strong year to date, although it has moderated from 2006's robust levels. The major central banks
had been focused on cyclical inflation pressures, but have clearly become concerned about dislocation in parts of the credit
markets and how that might impact on real economic activity.
At its last meeting, the Fed surprised the markets with a 0.5% cut in its key interest rate. Despite some cautious Fed comment,
investors have once again become confident that rates will be cut both this week and again early next year.
Following the recent ECB meeting, investors expect eurozone rates to remain on hold for some time, judging that US rate cuts
and a stronger euro exchange rate will be sufficient to offset the still hawkish stance of many ECB members. Bonds continue to
be a hostage to sentiment in equity and corporate credit markets.
Equity markets have improved of late boosted by the Fed rate cut and some improvements in the credit markets. However,
investors remain concerned about the earnings' implication of the credit dislocation and they want to see further normality
return to the money and credit markets. Further bouts of nervousness are quite possible. However, the perception that the Fed
will "cut as needed" has been a support to market sentiment.
At the moment, the funds are slightly overweight in bonds and neutral in equities. Sector positions are overweight industrials
and technology and underweight financials and some of the consumer-related areas. In terms of geographical exposures, the
funds are underweight Ireland and Japan, overweight the Pacific Basin and closer to neutral in other areas.
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.
