Omer Bhatti a sales trader at the City bookmaker Finspreads said: A number of factors are encouraging stock markets The Dow Jones
Posted in General on 30. Aug, 2010
Omer Bhatti, a sales trader at the City bookmaker Finspreads, said: “A number of factors are encouraging stock markets The Dow Jones is pulling the FTSE higher. M&A activity is spreading globally, not just in America and western Europe, and is having a global uplift. There haven’t been many companies sounding alarms over profits this year. Oil prices have relaxed and businesses are not having to inflate prices and can get back to usual.” However, Finspreads expects share prices to move sideways for the time being, and is calling the FTSE 100 to end the year at between 6,187 and 6,196 points.
Yesterday, Royal Bank of Scotland and Lloyds TSB were chased higher by renewed speculation they may attract the eye of foreign predators and upbeat comments on some within the sector from analysts at HSBC. The mining groups Rio Tinto and Kazakmys enjoyed solid gains after tin prices rose to their highest for 17 years. Britain’s companies by and large welcomed the 20 per cent decline in the price of oil in recent months because energy costs then eat less into profits.. That was the crash that never was.
With the FTSE 100 having now clawed back all of the losses of four months back, it is as if last May’s wobble in equities, when many forecast the start of another bear market, never happened Yesterday, the FTSE 100 surged to a new five-year high. The more UK orientated FTSE 250 is meanwhile already trading at its all-time record, and so too, in the US, is the Dow Jones Industrial Average. The doomsday scenario, so enthusiastically peddled by perennial bears, of a calamitous unwinding of global trade and capital imbalances, plunging much of the world into recession, has failed again to materialise. Like Seventh Day Adventists miserably left standing around the altar as the awaited hour comes and goes, the doomsters must once more defer the end of the world to another day. And it looked so possible that this time they might have been proved right.
What’s changed since May to reassure markets? The most important shift is that the interest rate outlook has improved markedly. Back then it looked possible that the US Federal Reserve would need to continue raising interest rates sharply to choke off inflationary pressures, resulting in an eventual hard landing for the US and world economies.
Few were then prepared to believe that the fast growing economies of Asia were yet ready to take up the baton of world growth in the event of a sharp US downturn That perception may have changed a little too. Globalisation has become one of the strongest reasons for believing that for the time being the world may have broken free of the old pattern of boom and bust. If the US slows, it doesn’t necessarily mean any longer that Asia must slow too. With strongly accelerating domestic demand, growth in these regions may already have become self sustaining. One of the reasons for the improvement in the outlook for interest rates and inflation is that the oil price has fallen. Few would have predicted that back in May either, when the Middle East was on a knife edge. The other main event is that corporate profits have continued to improve.
There was a buoyant second quarter reporting season, and what we have so far seen of the third quarter has looked good too. It’s often forgotten about shares; valuations are ultimately determined by the amount of profit companies are expected to make The outlook for corporate profits remains benign. Perhaps the biggest reason for believing equities are reasonably underpinned at this level is that even if we are heading towards a slowdown, valuations are a lot lower now than the last time we were at a similar stage in the cycle. Equity markets are still well short of the bubble inflated highs they achieved at the turn of the century.