Bulls On A Roll: Stockmarket Has Best Week This Year

[interestrateripoff]

http://www.guardian.co.uk/business/2009/ju...-booms-ftse-100

A new mood of optimism has been sweeping the stockmarket with leading shares last week recording their biggest five-day gain since the start of the year. But analysts believe there could be clouds ahead to spoil the sunny mood.

Last week's rises – the FTSE 100 climbed 6.3% during the week to close at 4388.75, its best level since 12 June – were prompted by sightings of the fabled green shoots of economic recovery, a series of much better than expected quarterly results from big US companies and even a spate of takeover activity.

China announced a 7.9% rise in gross domestic product in the second quarter – far above expectations. The country's growth is seen as a key factor in the recovery of the global economy and last week's figures led to a strong rebound in the shares of mining companies which are so dependent on industrial demand.

In the US, there was positive news on Friday for the country's housing market. The number of new houses being built climbed 3.6% to a better-than-forecast 582,000 last month; May's figure was also revised higher.

Although investors had been predicting that results from the big US investment banks would provide evidence they were shaking off the credit crunch, the likes of Goldman Sachs and JP Morgan surpassed the most optimistic predictions. Even Citigroup and Bank of America, where expectations were lower, managed to turn in creditable performances. Add to that decent figures from Intel, IBM and Google, and the US market managed its best weekly gain for four months.

Further signs of a nascent bull market have been in evidence in the last few days. A number of takeovers have emerged, including buyout vehicle Resolution's move for Friends Provident, Centrica's rejected bid for oil and gas group Venture Production, and an offer for Emerald Energy. On top of that, the speculators have also been back in force, with talk of bids for RSA Insurance, Dana Petroleum and Heritage Oil.

Momentum

But is this rally likely to last? Dealers point out that trading volumes have been thin, with the rival attractions of the golf and the Ashes adding to the usual summer lull. The situation is not likely to improve as the holiday season gathers pace.

Angus Campbell, head of sales at spread betters Capital Spreads, said: "One can't help thinking that this recent move has come all too soon and too fast. With momentum behind the bulls right now it's difficult to say that this rally won't last, but there's still so much evidence that the bearish fundamentals are little different to a couple of weeks ago when share prices were heading lower."

Jeremy Batstone-Carr at Charles Stanley said he believed the short-term outlook was reasonably positive, with corporate earnings almost inevitably beating what have been much lowered expectations. Indeed, his target for the FTSE 100 at the end of the year remains 4900. "But that will require a major act of faith," he said, "and if we do get there, it will probably be the peak for some time. Forecasts for profits for 2010 are far too high, and will need to be downgraded. So the medium and long-term prospects for the market are not good."

Indeed, last week's optimism may yet prove misplaced. Take the Chinese economy. Despite the positive GDP numbers, even the country's government is urging caution. Li Xiaochao, a spokesman for the statistics office, said "The basis of the rebound of the people's economy is not stable. The recovery is not fully balanced, so there are some regions that have not done as well as others."

Economists have also made it clear that last week's US housing figures do not mean the market has reached the bottom. Thomas Charles at the Centre for Economic and Business Research said: "With foreclosures and unemployment continuing to steam ahead, it is easy to push the argument in the opposite direction. The minutes released on Wednesday by the Federal Reserve for the latest Federal open market committee meeting reveal that even in light of some steadying indicators, most of the committee members viewed the housing sector as 'still vulnerable to further weakness'."

Closer to home, Britain's GDP is forecast to fall by 4.5% this year – the largest decline in a single year since 1945 – with only a subdued recovery of 0.5% in prospect for next year, according to the Ernst & Young Item Club. In a report, released tomorrow, the forecasting group says recent hopes of recovery are now running ahead of reality. Peter Spencer, chief economic adviser to the club, said: "The economic patient has been in trauma, but thanks to the paramedics at the Treasury and the Bank of England who pumped billions of pounds-worth of medicine into the economy, the patient has been stabilised for now. But it remains unclear how quick and complete recovery will be and there is still a serious chance of a relapse. It is hard to see any very solid grounds for sustained optimism at the moment."

Have the traders figured out there's short term profit to be made if they can get shares up and pull in the mugs with cash to fleece them?

Or has some of Columbia's finest recently arrived on the trading room floor?

[Deckard]

Right or wrong, investors are calling the recovereh - at least until the next big shock comes along

[Joey Buttafueco Jr]

My HPC contrarian fund is having a field day.