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Ellis Financial | Investment - Market Update

Ellis Financial | Investment - Market Update

Investment - Market Update

Overview

Equity markets moved further ahead last week, helped by some positive US economic data. The gains were mainly in the earlier part of the week and were followed by some profit taking on valuation concerns and fears that the better economic news might mean an interest rate cut from the Federal Reserve this week of only 0.25%. As a result, some markets were only marginally up on the week. Bond markets were also hit by interest rate concerns and succumbed to some profit-taking.

After a big drop in US consumer confidence at the end of the previous week, investors were buoyed on Monday by signs of an improvement in manufacturing conditions. The Federal Reserve Bank of New York's Empire State Index for the sector leaped to 26.8 in June, from 10.6 the previous month. The housing market index also recorded a strong advance, from 56 to 62, well above an expected 58.

Further positive statistics were released later in the week - higher housing starts and a 1% rise in leading indicators. The only weakness was in the Philadelphia Fed's index of business conditions, released on Friday. While the index recorded a rise of 4% after a negative 4.8% last month, expectations had been for a stronger rise following the leap in the Empire State Index earlier in the week.

In the eurozone, official figures confirmed the continued moderation of inflation pressures; but ECB comments suggested no immediate need to reduce interest rates further.

The Table below shows the movements in the main markets since last week's comment.

MarketIndex% Return 13.06.03 to 20.06.03
Local CurrencyEuro
USS & P 5000.72.8
USNASDAQ1.13.2
EuropeFT/S & P Europe Ex. UK2.62.6
IrelandISEQ1.21.2
UKFTSE 1000.62.4
JapanTopix2.03.2
Hong KongHang Seng0.82.9
AustraliaS & P/ASX 2000.12.2
BondsMerrill Lynch Euro over 5 Years-1.7-1.7

Equities

At the start of the week, firmer economic statistics buoyed the US S&P 500 Index initially, but fears on the interest rate front led to some profit-taking and the index ended the week only marginally ahead. In the corporate sector, Morgan Stanley, the investment bank, fell 6% on Wednesday after reporting a 25% fall in income during Q2. Kodak, the photograph equipment maker, fell 9% on warning that Q2 profits would be less than half earlier forecasts because of the impact of the SARS virus on sales in Asia.

In Europe, a strong performance by pharmaceuticals helped the index record a rise of 2.6%. Sanofi Synthelabo, Aventis and Novartis were boosted by announcements of, or expectations of, drug approvals. EADS, the aerospace company, gained from expectations of higher sales of the Airbus aircraft.

In the Far East, exporting stocks gained from better US economic indicators. Japanese car makers were buoyed by overseas buying and helped the Topix Index record a 2% gain on the week.

Bonds

Bond markets were hit by a bout of profit-taking after the strong advance in prices of previous weeks and also in reaction to the slightly better US economic news. Doubts about the size of the week's Fed cut and the timing of any further ECB moves also hit prices. Some strengthening in the dollar on the back of an improving US economy was also a negative for eurozone bonds.

Outlook

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