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Investment Analysis

The boost given to global markets by the Federal Reserve cutting interest rates by a further 50 basis points two weeks ago failed to have the momentum to continue into last week, as investors took in further bad news on the US economy. Global markets were mixed, with the Dow losing some of its gains from the previous week. Japan finished lower, Europe and UK finished flat but the Pacific and emerging markets ended higher.

In the US, new home sales fell by 9.5 per cent in April. Up to now, this had been one area of the economy that had remained resilient. Then there was poor employment data that showed a rise in weekly jobless claims. After seeing the Dow climb comfortably over the 11,000 mark, investors in the US decided it was time to take profits. Tech stocks suffered after making good ground in recent weeks, with Cisco Sun Micro Systems and Oracle both shedding over 4 per cent on Wednesday.

The FTSE 100 looked like it was about to breach the elusive 6,000 level on Tuesday after six successive positive days, finishing just 23.4 points short. However, a poor day in the US on Tuesday, followed by further profit-taking the following day, meant a disappointing Wednesday in London, with markets finishing lower.

In Europe, markets were given some good news with talk of further monetary easing by the European Central Bank following a weak German business survey.

The Nikkei 225 broke through the 14,000 level at close on Wednesday but was unable to stay above it as selling pressure in the technology sector saw the index end lower.

A limited supply of domestic economic and corporate data left the market struggling to find direction last week. America thwarted an assault on 6,000 by FTSE 100, with the index closing on Thursday where it started the week. The FTSE All Share was also flat. What performance there was came from the lower-cap end.

European bourses were generally flat over the week, with the FTSE Eurotop 300 marginally higher by 0.5 per cent. Tuesday saw gains in the IT sector, with Alcatel and STMicroelectronics up 4.5 and 3.3 per cent respectively. In the telecoms sector, Deutsche Telekom and Sonera gained 2.9 and 3.2 per cent on the same day.

Investors took profits earlier in the week after seeing a recovery in the market and following poor housing and jobs data. The Dow lost 1.6 per cent by Thursday&#39s close, with the broader-based S&P index ending the four days flat. Inflationary pressures may point to the Fed reviewing its aggressive monetary easing policy.

The Nikkei 225 finished lower for the third week, down by 0.8 per cent. A good start to the week, which saw the index scale 14,000 on Wednesday, was tarnished with falls on Thursday and Friday, with profit-taking after poor data from the US. Investors are still awaiting clear proposals on the emergency economic package.

Markets in South-east Asia broadly had a good week, with the Hang Seng ending 2.2 per cent higher. In Hong Kong, shares in property developers were up but the tech sector was hit by profit-taking. Malaysia finished the week strongly, shrugging off weaker than expected first-quarter GDP figures, as did Thailand.

Overall, it was a flat week for global markets, with the FTSE world index finishing where it had started. Lack of economic and corporate data left the markets looking for direction. However, it was a better week for South-east Asian and emerging markets, with the Barings emerging index higher by 1.1 per cent at Thursday&#39s close.


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