Nothing like good gains

Investors and the general market seem to be driven by the fact that solid consumer spending, strong corporate earnings and good economic health are now the foundations driving the global economies.

The June light crude futures contract trading on NYMEX was down 60 cents on Monday this week to $74.57, whilst the June contract for Brent crude lost 58 cents to $73.99. Remember when the prevailing view that the economies of the world could not work at prices above US$40 a barrel. Well look at us now. China once again turned in a bumper GDP growth rate, too high to be healthy but a reminder of the sleeping giant who just waiting to consume commodities.

The equity markets continue to carve out new highs with the US Blue Chip Dow Jones Industrial Average hitting a six- year high last week. We also note the S&P 500 is back down to an 18.26 P/E ratio indicating good value in the index.

Geo-political events may now become the centre stage for the second quarter as economic news seems flooded with good. Let’s see how the UN can deal with Iran and their efforts to become a nuclear nation.

BUSH WOWS HU

As we all learned watching Bush and He last week on the news, China is now the United States’ third largest trading partner and the world’s fastest growing major economy. China’s emergence presents significant opportunities for businesses and workers around the globe, but its positioning towards acquiring resources to meet its needs makes it a strong competitor as well. China presents serious issues which require active and careful management by the leading nations as regards trade and commodity utilisation.

UNITED STATES: STOCKS RALLY

In the United States this past week, stocks initially declined on high oil prices, but later rallying amid positive corporate earnings from Google, IBM and Citigroup. Strong results, combined with the hint from the Federal Reserve (Fed) that interest-rate hikes were nearing an end in the interest rate raising cycle, sustained investor confidence despite oil prices hitting all time highs and lingering concerns over higher inflation. On Thursday, the Dow Jones touched a six-year high, hitting 11,486.16. Key to this achievement was the release of the minutes of the US Federal Reserve on Tuesday of the meeting held on March 27 and 28 which revealed that policy makers were surprised by the lack of any increase in core inflationary pressure.

The Consumer Price Index (CPI) increased by 0.4% in March amid higher energy costs and rents, the Department of Labour announced last Wednesday. And in more US economic news, initial jobless claims dropped by 10,000 to 303,000 in the week ended April, 15 according to the Department of Labour. Workers’ average hourly earnings in March were 3.4 % higher from a year earlier, the second-biggest gain in earnings since September 2001.

In US corporate news, I would be remiss if I didn’t include Google. Shares in Google rose 8% as the world’s most used search engine announced 60% growth in its first-quarter profits, exceeding analysts’ estimates and extending its lead over Yahoo! and MAN. Texas Instruments, the semiconductor maker, reported a 42% jump in first-quarter profits due to increased sales in India and China. However, Intel, the world’ biggest chip maker, reported 38% decline in net profits during the quarter.

UNITED KINGDOM : INFLATION DOWN

UK equities also closed higher, achieving fresh five-year highs as mining stocks, such as Antofagasta, rebounded, and oil heavyweights, including BP, came in with strong results.

In stock market news, shares in the London Stock Exchange (LOST) hit a new high as speculation about a possible take-over bid by the New York Stock Exchange (NYSE) circulated. Investors focused on a regulatory filing, in which that NYSE stated that it had held talks with rivals over the past month about a possible acquisition.

As regards interest rates, seven of the eight members of the Bank of England’ rate-setting committee voted to keep benchmark interest rates unchanged, according to the minutes of the policy meeting held in April. The members, however, noted that inflation expectations needed to be monitored. In economic news, and contrary to expectations, UK inflation fell to a 13-month low of 1.8% in March, down from 2% in February as prices of food and air travel declined, according to the Office for National Statistics.

LOOKING AHEAD: BRINGING VALUE

It’s always good to see good news hit the markets and bring value onto the table and that is what we have seen over the past month or so. However, looking longer term, we see moderate and managed growth where careful management of commodities and stabilization of the geopolitical issues are important to a continued expansion. Money supply remains strong and both consumer and investor appetite are sufficient to support expansion.

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