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Investment analysis

It was another volatile week for equity markets as a potentially inflationary surge in oil prices and another positive US Jobs report brought the prospect of higher interest rates for the world&#39s biggest economy ever closer. By the end of the week, the FTSE World index had fallen by 1.1 per cent and is now in negative territory since the start of January.

In the UK, the Bank of England raised interest rates by a quarter-point to 4.25 per cent, the third increase since November. However, the move had been widely expected and had little impact on share prices. Meanwhile large cap stocks continued to outperform, with the FTSE 100 gaining 0.2 per cent compared with a decline of 1.6 per cent for the more cyclically biased FTSE 250 index. Smaller companies also continued to lose ground, with the FTSE Small Cap index ending the week 1.1 per cent lower.

All the latest economic data from across the Atlantic pointed to higher US interest rates, with the latest manufacturing and service sector figures stronger than expected.

However, the main economic event of the week was the release of the latest non-farm payroll employment data on Friday which showed a further 288,000 jobs were created during April, way ahead of most estimates, while the March figure was also adjusted upwards.

While the Federal Reserve elected to leave interest rates at their 46-year low of 1 per cent, it now seems inevitable that there will be an increase in rates in August or possibly even sooner.

Although both the recent economic and corporate data has been encouraging, stocks again fell as investors continued to fret over the prospect of higher interest rates. By the end of the week, the Dow Jones had fallen 1.1 per cent while the S&P 500 was trading 0.8 per cent lower.

Technology stocks, which have performed poorly of late, were steadier, with the Nasdaq ending the week 0.1 per cent lower.

In Europe, interest rates were left on hold as expected and while the FTSE Eurotop 300 index pushed back through the 1,000 level during the middle of the week, the index had fallen back by Friday&#39s close, ending the week 0.2 per cent higher.

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