Global markets run with bulls

Stocks rallied across the Board last Friday to close the month with a strong performance. And the rally continued through to Monday. The United States Dow Jones Industrial Average briefly crossed the magical 9000 barrier on Monday before closing at just under 8900. The NASDAQ and S&P too neared their 52 week highs as positive economic numbers boosted investor confidence.

The biggest index gains were in the NASDAQ and German DAX with both indexes rising more than 5% for the week. The Asian markets also recovered as SARS fears faded away. To reflect on the month, the DOW was up 4.4%, the NASDAQ up 9.0% and the S&P logged its third straight month of gains. Improving US consumer confidence (now at 83.8, a five month high and up from 81 in April) and the Chicago May PMI index rising to 52.2 (a figure above 50 indicates economic growth) along with better than expected new home sales in the United States helped boost investor confidence. Strong consumer spending in the US caused the GDP for the first quarter to be revised up from the expected 1.6% to 1.9%. Even the German Business Confidence figure rose in May, coming off a 16 month low in April. The slow and steady rise of stocks over the past 10 weeks (the US DOW is up 16% from mid March) along with the fact that the stock markets always anticipate economic recovery 2 to 6 months in advance augurs well with the improving economic statistics now released.

There has been much discussion about the status of disinflation in the Euro Zone and in particular, Germany. Most analysts now see general currency devaluation’s continuing along with a strong need for the European Central Bank to lower rates. French unemployment picked up in May, reaching its highest level in three years, putting more pressure on the ECB.Not all the economic news was good though. Durable goods orders fell in the US in April by 2.4%, mostly due to a fall in demand for autos and business equipment.  Personal spending in the US was off in April as well, down 0.1% after March’s 0.8% rise. However, at Costco, the US’s largest membership wholesale chain, profits for the quarter rose 18% with net income reaching 153.8 million, up from 130.4 a year earlier. Spending was strong in the UK with the most recent Bank of England inflation report stating that the fall in consumer confidence, house prices and borrowing was seasonal and/or war induced. House prices rose 1.3% in May according to Nationwide after a flat April. New home loans have also picked up (now at its best pace for six months) along with remortgaging, equity withdrawal and credit card lending. The UK consumer confidence figures from GFK show a second straight month of increase, a clear statement from consumers about their future income streams. As for retail stocks, HSBC has revised its estimate of retail sales growth up from 2.7% to 4.5% in line with the improved consumer spending picture.

We note that some UK stocks have faired well, or at least better than our own West Indies Cricketers. Cable and wireless started the year at a measly 41pence to have now broken over the GBP 1.0 mark on Friday. Deutsche Bank are forecasting a share price of GBP 1.3 if the new C&W management can solve the carnage in its global telecom business. Japan also had a great May as regards the economy and stocks. In fact, Japan had its best equity trading month in four years. Housing starts rose by 1.4% over the previous year (a decline of 2.5% was forecast), and construction orders at the top 50 construction firms rose by 16.5%. The Latin American markets also enjoyed solid equity trading performance. The Venezuela central bank lowered interest rates by 4% to 32%. a two year low in a move to spur investment after the economy contracted sharply in 1stQ 2003. Looking ahead, there will likely be interest rate adjustments, especially in Europe, so expect some excitement as the next round of central bank meetings approach. Consumer spending continues to be the key factor in driving the economic recovery with many of us hoping to see improvements in the business spending figures.

e-mail: darcy@investments-intl.com