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Investment analysis

Global markets performed poorly last week as investors juggled with fears

of inflation and falling corporate earnings. The FTSE World Index ended the

week down by 1.9 per cent. Of the major markets, Japan and Hong Kong lost

3.7 per cent and 4.5 per cent.

In the US, mixed economic news caused confusion. The latest job figures

were better than expected but there was a negative showing from the

manufacturing sector where the purchasing management index for May fell


Alan Greenspan acknowledged, for the first time, that continued aggressive

monetary easing could fuel inflation, suggesting future cuts may be in

smaller steps. Investors still seem more concerned about falling corporate

earnings, judging by their reaction to Sun Micro Systems latest profit

warning. It lost 13 per cent on Wednesday.

The FTSE 100&#39s recent attack on 6,000 was long forgotten as it saw four

consecutive sessions of losing performance. Friday saw the index firm up

amid hopes of a pre-election rally and a strong possibility of a further

cut in base rates when the monetary policy committee meet on Thursday.

UK markets had to cope with domestic news which showed a worryingly weak

survey of the manufacturing sector, suggesting it had declined to its

lowest level since Jan 1999. This tied in with data from Europe where the

purchasing managers index was also at its lowest level since January 1999.

Following the recent poor German business survey, last week saw similar

figures showing French business confidence has fallen to a two-year low.

Poor domestic news saw the UK market finish the week lower, with the FTSE

100 and the Allshare ending off by 1.4 per cent and 1.2 per cent. Small and

mid-cap stocks were unable to sustain their recent positive performance,

the respective indices losing 1.4 and 0.2 per cent.


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