World roundup

Strong corporate earnings dominated world markets last week. Investors rotated out of technology issues into old economy blue-chips amid concern that the good news has already been factored into valuations. However, global markets were supported by encouraging economic data.

TMT
Nasdaq: 2119 from 2140
The prolonged technology rally faltered last week, as investors cashed in profits in the belief that earnings have already been factored into valuations. Mobile phone makers suffered early losses after Motorola’s solid earnings failed to meet the market’s inflated expectation. However, the sector recovered later in the period when bellwethers Nokia and Siemens’ results both surpassed forecasts. Increased mobile phone demand was also credited by Infineon Technologies for its strong profits and the chipmaker added that the semiconductor industry is “finally in an upswing phase”. Meanwhile, further good news for technology stocks came from German software maker SAP after it posted a bullish outlook for the current year and forecast increased capital spending on IT during 2004. Microsoft also exceeded expectations, although a decline in the software giant’s unearned revenue provided some cause for concern.

US
Dow Jones: 10623 from 10601
Upbeat fourth-quarter earnings dominated US trading last week, but concerns that these strong results have already been priced into the market limited overall gains. The rotation from technology stocks into old economy blue-chip stocks propelled the Dow Jones and the S&P 500 indices to new 22-month highs. The banking sector was a notable beneficiary, rallying on the back of expectation-beating earnings from JP Morgan Chase and Merril Lynch. Healthy numbers from JDS Uniphase provided a strong start to the week for the telecoms and networking sectors. However, the Canadian network gear maker was among the biggest losers – alongside Sonus Networks – as investors quickly cashed in profits. The earnings news meant that economic updates were sidelined, but new weekly claims for unemployment benefits enjoyed a sharp fall.

Europe
FTSE Europe ex UK: 1069.81 from 1062.26
Currency concerns continued to beset European sentiment as the euro reached its highest level against the US dollar in 19 months. The rise came after central bankers indicated that they will not cut interest rates or sell euros to stem the single currency’s appreciation. Drug makers hit the headlines after heavy falls in 2003 profits led to the surprise resignation of the Lonza CEO. Additionally, speculation over a possible hostile takeover of Aventis by fellow French drug maker Sanofi-Synthelabo was rife. There was some troubling economic news as Italian consumer confidence in January fell to its lowest level in a decade in the wake of the Parmalat scandal. However, there was good news for troubled Swiss staffing group Adecco on reports that accounting discrepancies may not be as bad as feared The week ahead
Having taken a back seat to fourth-quarter earnings, economics will return to the fore this week. Not only are global investors awaiting the advance reading of US fourth-quarter GDP, but the Federal Reserve will also meet for its first monetary policy meeting of 2004.

UK
FTSE 100: 4461 from 4488
Economic news gave UK investors reason to cheer last week, helping the FTSE index touch its highest level in 18 months. Britain’s economy expanded 0.9% in the fourth quarter, its fastest rate for four years, while retail sales in December increased the most since last June. Oil majors were among the main gainers, after BP increased its internal assumption of oil prices, Cairn Energy found oil in western India and crude oil prices hit 10-month highs. Financials were also in focus. Banking stocks Barclays and Royal Bank of Scotland both fell on the back of ABN Amro downgrades, while investment company Inflexion rose after announcing proposals to acquire an investment portfolio from London Merchant Securities. Life insurer Aviva also gained ground after reporting modest growth in last year’s sales and said that prospects remain strong.

Asia Pacific
FTSE Asia/Pacific ex Japan:

229.63 from 224.63
With most markets closed for the Chinese lunar New Year, it was a quiet week for Pacific Asian trading. Still, a round of economic data garnered attention. The Chinese economy soared a massive 9.1% in 2003 – the fastest growth in six years, – Hong Kong unemployment fell in December and rising demand slowed the decline in the territory’s consumer prices last year. Australia’s troubled All Ordinaires index was rocked by a foreign exchange scandal – National Australia Bank revealed heavy losses from unauthorised options trading that could potentially be as high as A$600m. Elsewhere, rating agency Moody’s upgraded India’s credit ratings to investment grade based on robust economic growth – GDP grew by 4.2% in 2003 – and increased foreign investment.

Japan
Nikkei 225: 11069 from 10857
The surprise decision by the Bank of Japan to ease monetary policy pushed Japanese stocks higher last week, although gains were marred by currency-inspired volatility. The central bank raised its target for the balance of current accounts – a move aimed at supporting the economic recovery and fighting inflation. Currency concerns returned to the fore mid-week, when US president Bush’s plans to combat the US deficit, and reports that G7 countries may intervene to stem the greenback’s fall, were met with scepticism from currency analysts. Technology and auto exporters bore the brunt of the yen’s renewed strength. However, buying resumed last Friday as investors eagerly anticipated some impressive earnings from some of the country’s leading companies this week.