MARKET WRAP: The Bull Takes a Breather
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June 8, 2007
US
After a string of record runs earlier in the week, the momentum was snapped by Fed chairman Ben Bernake when he suggested that recent strong economic data would reduce the likelihood that the Fed will cut interest rates. Labour costs rose higher than expected, fuelling worries about inflation and rising interest rates. These developments sent the DOW declining more than 100 points on Wednesday.
Google posted a record high this week on news that it is pursuing a deal with Salesforce. Bed Bath and Beyond had its first profit warning in 15 years and saw shares decline.
Asia Pacific
The Nikkei surpassed the 18000 point mark for the first time in three months.
In China, the fallout continued after a tripling of stamp duty on share transactions was announced last week, with the Shanghai composite index dropping 7.7% on Tuesday before another large fall on Wednesday and then stabilisation on Thursday.
Australia went from strength to strength this week. Australian companies’ gross operating profits rose 7.6% to a seasonally adjusted A$47.05 billion in the first quarter of 2007, up 17.1% from the previous year. GDP numbers also beat estimates and unemployment fell to the lowest level since 1974. BHP Billiton reached a record high share price this week while the general market was weaker. Australia kept interest rates as is at 6.25%
The New Zealand dollar reached a 22-year high after the Reserve Bank raised interest rates 0.25% to a record 8%.
UK
European shares fell for a third consecutive day on Thursday after the European Central Bank (ECB) lifted interest rates. Official interest rates went up by 0.25% to 4%. The ECB called the new rates “accommodative” which was translated to mean more potential rises. Higher rates are generally negative for the stock market as they increase borrowing costs and thereby curb consumer spending and business profits.
End Note
All eyes were on interest rates this week, with Australia, New Zealand and Britain handing down monthly decisions. As a result, currencies were volatile, with Australia hitting a 17-year high and New Zealand a 30-year high against the US dollar.
China once again took centre stage with the 7.7% Shanghai Composite falloff. In general, though, economic data out of Asia does not point to a slowdown. Despite talk of an inevitable tipping point in strong markets there is positive GDP data out of Australia, India, Philippines, Singapore and Malaysia. The economies of the Asia Pacific region are showing little indication of losing steam.
Happy investing!
Julia Lee
Head of Fundamental Analysis
Trading Tutors
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