market update.

17 May 2012

Positive growth versus Greek uncertainty

Ian Copelin, Investment Director, WEALTH at work comments “The FTSE-100 failed to hold on to early gains this morning and ended lower for the fourth straight day, as fears about Europe continued to weigh on the market.

When the market closed, the FTSE-100 was down 66.87 points, or 1.24%, to settle at 5,338.38 – its lowest level since 29 November 2011.

The FTSE-100 along with other major European indexes initially rebounded this morning - sentiment was boosted after better-than-estimated US economic data showed housing starts rebounded in April and industrial production rose 1.1% (the fastest growth in over a year), coupled with comments from several members of the Federal Open Market Committee (FOMC) yesterday that further monetary easing was an option.  This follows better-than-expected economic data from Europe – on Tuesday (15 May 2012), data released showed that Germany had helped the euro area avoid recession.  The German economy expanded 0.5% (compared with a forecast of just 0.1%), while GDP in the 17-nation euro region was flat in Q1 compared with the last quarter of 2011 (the market was forecasting a 0.2% contraction).

However, concerns over Greece's political and economic future again took the centre stage.  The ECB has announced that it will temporarily stop lending to some Greek banks to limit its risk, while the ECB President, Mario Draghi, acknowledged for the first time that Greece could leave the monetary union.  Up until now a Greek exit was seen as ludicrous by the ECB, but it is gradually becoming seen a probability and the ECB is clearly starting to prioritise its balance sheet over monetary-union geography.  Following the failure of Greek party leaders to form a coalition government new elections will be held on 17 June – opinion polls suggest that parties opposed to the conditions of its international bailouts are gaining, which raises the possibility of its exit.  Although the trend of bank deposit withdrawals in Greece has slowed, on Monday Greek banks suffered €700 million of withdrawals. 

Come what may of the euro, equities look very attractive and I believe will endure:  US economic growth is positive (and beating expectations) and corporate earnings continue to grow strongly (and beat expectations – so far this quarter 95% of companies in the S&P 500 have reported earnings.  Of these 330 (70%) have beaten earnings expectations by an average of 6.22%).  If you ignore Europe, everything is moving slowly but surely in the right direction.  Unfortunately when you look at Europe, Greece is creating the uncertainty right now – and as I said in my last note, global equity markets can cope with bad news, but it hates uncertainty.”

11 May 2012

Uncertainty

Ian Copelin, Investment Director, WEALTH at work comments “Global equity markets can cope with bad news, but it hates uncertainty.

The Greek election result was the worst possible scenario for uncertainty, which in turn creates uncertainty for the Eurozone.

The two main parties, which would form a coalition and continue down the path of austerity and enacting the agreements with its creditors, fell short of a majority in the 300-seat parliament, as voters switched to anti-austerity parties.

Of the two incumbent parties, New Democracy won 19% of the total vote and 108 seats, while the socialist party, PASOK, was in third with 13% and 41 seats – just 2 seats short of a majority. The SYRIZA party, which wants to cancel the bailout terms, came in second with 17% and 52 seats.

Consequently, the New Democracy party had three days to form a coalition.  As it failed SYRIZA has three days to form a government.  After that, PASOK gets three days to try and form a government.  If this fails and the President is unable to broker a government of national unity by 17 May another election will be called.

If one of the other 5 parties that won seats in parliament refuses makes a U-turn and form a government with New Democracy & PASOK, I believe that most likely outcome is fresh elections which will see voter support return to the two main parties, New Democracy & PASOK, which will allow them to form a coalition.

With uncertainty heightened and focus back on European debt, the Spanish market was also hit – the cost of insuring Spanish debt rose sharply over the week.  However, what the market has yet to recognise is that the Spanish government has made it easier for companies to cut wages and renegotiate contracts.  Consequently, their competitiveness has been boosted in a similar way that a currency devaluation would have been used before joining the euro.  As a result, productivity has improved and exports are growing rapidly.

After sharp falls over the last week, global equity markets recorded gains yesterday, helped by strong US economic data - this time it was jobless claims data which was better than expected – and news that the European Financial Stability Facility would make a €5.2 billion payment to Greece. The Dow Jones rose 19.98 points and the S&P 500 rose 3.41 points, while in the UK, the FTSE-100 rose 13.9 points.”

11 April 2012

US Employment

Ian Copelin, Investment Director, WEALTH at work comments “The calm in global equity markets since the Greek bailout in February disappeared yesterday when the FTSE-100 fell 128 points (2.24%) to 5,596, as investors panicked over a double-dip US recession and an increase in Spanish bond yields fuelled concern Europe’s debt crisis is worsening.

The US Labor Department said on 6 April that employers added 120,000 jobs in March - less than the median economist forecast of 205,000.

Spanish bonds fell after the Governor of the Bank of Spain said that Spain may need more capital if the economy was to weaken more than expected, following a further 10 billion-euro package of budget cuts in education and health - less than two weeks after unveiling an already austere budget.

Although the market reaction to these events has not been pretty, there is a very clear disconnect between reality and expectations - 'only' creating 120,000 new jobs doesn't mean a US double-dip recession.  Yes, the report was mildly disappointing, but it is important to average recent months - nonfarm payrolls averaged about 211,000 each month in the first quarter.  It is never going to be a straight line; it will have very strong months and some weaker months.

However, what is clear is that the job market and the economy are steadily improving.  In addition, hourly earnings climbed 0.2% on average in March after a revised 0.3% gain in February which was larger than expected.  Positive income growth will support consumer spending, which in turn will support the economic recovery.

Europe will probably be only a temporary concern as the market is simply signalling that the ECB's LTRO hasn't fixed all the problems.  However, the ECB and the European leaders no longer appear to be behind the curve and once investors see a plan or have reassurances, then Spanish bond yields will fall.

The FTSE-100 is currently up 26 points at 5621.55.”

21 March 2012

Budget 2012: Market & Economy

Ian Copelin, Investment Director, WEALTH at work comments “From an economic standpoint this Budget statement was all about reassuring the global markets that the government is serious about cutting our massive budget deficit.

Although it is now expected that this fiscal year’s budget deficit will ‘only’ be £126bn, £1bn less than the government’s forecast last November, it was obvious that there was, in reality, very little that the Chancellor of the Exchequer George Osborne could do:  the UK still had a £126bn deficit!  A £1bn ‘giveaway’ would not only have a limited macroeconomic impact it would send the wrong signals to the global market and the important rating agencies (Moody’s & Fitch already have the UK on a negative outlook), given the size of the UK’s annual budget deficit (currently more than 8.3% of gross domestic product).

Although media headlines are negative, the UK’s economic growth outlook is improving and is highly likely to return to growth this quarter following the 0.2% contraction in GDP during the last quarter of 2011:  manufacturing & services data and consumer confidence have all shown improvements and with the euro crisis now receding (the impact of which on the UK has been “significant”), coupled with reassuring economic data from the US, confidence in UK plc will quickly improve, leading to investment and recruitment.  The Office for Budget Responsibility (OBR) now believes that the UK economy will grow by 0.8% (compared with 0.7% previously) and 2.0% in 2013.

This confidence and economic recovery will be helped by this Budget following the two ‘pro-growth’ announcements.  Firstly, the lifting of restrictions on Sunday opening hours for two months this summer (which will probably lead to a permanent relaxation) should boost consumer spending and increase employment in the retail sector and secondly, the £20bn National Loan Guarantee Scheme, which should help small and medium sized companies get access to cheaper borrowing.  Under the scheme the government (which given its AAA credit rating, can borrow money more cheaply than the banks) will underwrite the lending so that the banks can pass-on those lower interest rates.

From a stock market standpoint this Budget statement, like many over the last few years, has little impact (with the exception of sentiment surrounding some of the smaller North Sea oil exploration companies).  As with previous statements the FTSE-100 barely moved during Chancellor George Osborne’s speech as the market digested his statement, moving in a narrow range between 5,886 and 5,898.  However, today’s overall move on the FTSE-100 is more of a reflection of the global environment than the UK Budget statement – following yesterday’s decline on concern China’s economy was slowing, investors have today reacted favourably to a report which shows that the US housing market is stabilising.

The big mistake that many investors make is to focus solely on the UK economy and assume that the FTSE-100 will move in line with that economic outlook.  With around two-thirds of the FTSE-100’s sales coming from overseas, the linkage between the FTSE-100 and outlook for the UK economy is limited.

However, the UK gilt market has reacted positively (helped by the Debt Management Office’s expectation that gilt issuance this fiscal year will be around £167.7bn – much lower than consensus estimates of £180bn – and news that the Chancellor was considering issuing a perpetual gilt).  The benchmark 10 year gilt has seen yields fall nearly 5 basis points to 2.375%.

Overall a safe budget – and one that reflects the UK’s reliance on investor confidence.”

29 February 2012

Dow Jones closes above 13,000

Ian Copelin, Investment Director, WEALTH at work comments “Yesterday, the Dow Jones closed above 13,000 for the first time since 19th May 2008.  The index rose 23.61 points (0.18%) to 13,005.12 helped by better-than-estimated consumer confidence.

Yesterday’s rise takes this month’s rally in the Dow to 372.21 points (2.95%) and puts the index on course for a third consecutive month of gains (so far over the last three months the Dow has risen 959.44 points or 7.97%).  Since the start of the year the Dow has rallied 787.56 points (6.45%).  Investor confidence has been helped by economic data, corporate profitability, the European Central Bank’s LTRO, a Greek bailout and the Federal Reserve’s pledge to keep interest rates low to at least 2014.

However, the growth in corporate earnings has allowed the market to rise without pushing the Price/Earnings (P/E) ratio higher – a recent Bloomberg article highlighted that although the S&P500 index is back to its 2011 high, expanding earnings means that the market P/E is only 14x compared to 15.4x at the markets 2011 peak.  US corporate profits have beaten market expectations for 12 straight quarters and so far this quarter (from 9 Jan 2012) of the 464 companies in the S&P 500 that have reported earnings, 313 have beat expectations.

The US market could rally again this afternoon as Q4 2011 GDP data has just been (1.30pm) revised upwards – GDP for the last quarter of 2011 climbed at a revised 3% annual rate, compared to the 2.8% initially reported.  Given recent strong employment data, the US should see a pick-up in consumer spending, which will keep the US economy growing (the consumer accounts for about 70% of the US economy).

The FTSE-100 is currently (1.45pm) unchanged on the day at 5,928.”

21 February 2012

Greek Bailout Deal

Ian Copelin, Investment Director, WEALTH at work comments “Despite news that Greece had secured enough concessions from private investors to win a second bailout from European governments, the FTSE-100 has today retreated from a seven-month high as the market is now speculating that the bailout deal won’t solve the nation’s debt crisis.

After 13 hours of talks in Brussels, European finance ministers approved the €130 billion bailout package in a deal where private creditors will write-off 53.5% of their principal and exchange their remaining holding for new Greek government bonds and notes from the European Financial Stability Facility (31.5% will go into 20 new Greek government bonds with maturities between 11 and 30 years and the remainder will go into short-dated securities issued by the EFSF).

The agreement will reduce Greece’s debt burden by €107 billion – without the write-off, Greece’s debt would probably have been twice the size of its economy (which is shrinking fast – Greece is in its 5th year of recession and during 2011 Greece saw its economy contracted 6.8%) by the end of the year.  Even with the deal Greece’s debt is still expected to be around 120% of GDP by 2020 (although a European and International Monetary Fund analysts recently highlighted that Greece’s debt could be as high as 160% of its GDP in 2020 as the country will find it difficult to grow without being able devalue its currency).  In addition, there are concerns over whether or not the next Greek government (elections are scheduled to be held in April) will enforce the austerity measures after they have received the bailout package.

The FTSE-100 is currently down 20 points (0.33%) at 5,925.”

3 February 2012

US Payrolls Jump

Ian Copelin, Investment Director, WEALTH at work comments “US employment climbed more than forecast in January (payrolls increased 243,000 versus market expectations of a 140,000 increase) and the US jobless rate unexpectedly fell to 8.3%, the lowest in three years.

Factory workers put in an average 41.9 hours of work each week, the most since January 1998, while overtime hours climbed to the highest since March 2007.  Manufacturing payrolls increased by 50,000 in January, the most in a year, while construction companies added 21,000 workers and the Government decreased payrolls by 14,000.  The underemployment rate (which includes part-time workers who would prefer a full-time position and people who want work but have given up looking) decreased to 15.1% from 15.2%.

This data clearly illustrates that the US recovery is stronger than many think and that US companies are gaining confidence that the US economy will weather any uncertainty caused by the Eurozone debt crisis.

The release of the data at 1.30pm sent the FTSE-100 sharply higher – it is currently up 74 points (1.28%) at 5,870, having been up only 24 points (0.41%) just before 1.30pm.  US futures indicate a firmer start for the S&P 500 and Dow Jones – the S&P 500 is poised for its fifth week of gains (its longest streak in a year), while the Dow is just 105 points (0.82%) away from its 2011 peak of 12,810.54 set on 29 April.

Elsewhere, rumours suggest that European officials and Greek creditors will shortly agree to a loss of more than 70% for bondholders in a voluntary debt exchange involving Greek debt with a face value of about €200 billion.  This should allow Greece to access the next tranche of its international bailout package - Greece faces a €14.5 billion bond payment on 20 March 2012 and general elections as soon as April.”

2 February 2012

Waiting for tomorrow's employment report

Ian Copelin, Investment Director, WEALTH at work comments “Despite a flat day today, the FTSE-100 is heading for a third week of gains thanks to a strong run over the past couple of days.

The FTSE-100 had a breather today, rising just 5.35 points (0.1%) as investors wait for tomorrow’s US employment report (due at 1.30pm) to gauge the strength of the recovery in the world’s largest economy – yesterday (Wednesday 1 February), UK equities had their best day since 3 January, jumping 109.11 points (or 1.92%) as manufacturing data from China, Europe (where German output grew for the first time since September) and the US (where output rose to the highest level in seven months), exceeded expectations leading to optimism that Europe may avoid sliding back into recession and growth will boost company earnings further – so far this quarter, 169 of the 257 companies in the S&P 500 that have reported results have beat expectations.”

18 January 2012

Greece Nears Debt Deal?

Ian Copelin, Investment Director, WEALTH at work comments “The FTSE-100 is little changed this morning (up 6 points at 5,700 at 11am) following a cut in global growth forecast by the World Bank.

The World Bank now expects the global economy will grow by 2.5% this year (in June 2011 they estimated growth would be 3.6%).  For the euro area they now forecast a 0.3% contraction (having previously expected 1.8% expansion), while the US growth outlook was cut to 2.2% from their June estimate of 2.9%.

This has overshadowed the positive news that Greece is nearing a debt deal with private creditors.  Rumours suggest that a deal would provide creditors cash and securities with a market value of about 32 cents per euro of Greek government debt.

Elsewhere, Portugal will test debt markets today as they sell 11-month Portuguese bills (Portugal’s credit rating was cut to ‘junk’ status by Standard & Poor’s last Friday (13 January 2012)).  So far the credit downgrades have been a non-event:  yields on European government bonds have fallen and it hasn’t impaired the ability of France and Spain to raise money.  On Monday France sold €1.895 billion of one-year notes without a problem at a yield of 0.406%, versus 0.454% at an auction of similar-maturity securities on 9 January 2012, while yesterday Spain (whose rating was cut by two levels to A) sold 1 year debt at 2.049% compared with 4.05% on 13 December 2011.”

16 January 2012

S&P Rating Downgrades

Ian Copelin, Investment Director, WEALTH at work comments, "After a couple of weeks in which better economic news from the US and easier monetary policy in China was the markets main focus (and had helped markets move higher), the euro-zone crisis is once again dominating market activity.

After markets closed last Friday (13 January 2012), Standard & Poor’s, the rating agency, downgraded France to AA+ from AAA with a negative outlook.  It also cut Italy, Spain, Portugal and Cyprus by two grades, while also lowering the long-term ratings on Austria, Malta, Slovakia and Slovenia.  Germany, Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands had their ratings affirmed by S&P.

The downgrade had been widely expected and was already priced in to equity and bond prices.

The downgrades also didn’t limit borrowing ability - France today sold €1.895 billion of one-year notes without a problem at a yield of 0.406%, versus 0.454% at an auction of similar-maturity securities on 9 January 2012, while the yield on France’s 10-year bond dropped four basis points to 3.03%.  Spain’s 10-year yield fell four basis points to 5.19% and Italy’s 10-year bonds dropped two basis points.  Ten-year German bund yields were little changed at 1.77%.

The FTSE 100 Index closed up 20.8 points (or 0.37%) at 5,657.44.   However, Carnival, the world’s biggest cruise operator, fell £3.70 (or 16.46%) to £18.78, after announcing that the grounding of the Costa Concordia off Italy’s Tuscan Coast will cost the company as much as $95 million.  Although it’s too early to forecast the likely effect on Carnival’s bookings, Alexa Huener, a spokeswoman for TUI Travel, Europe’s largest tour operator said that so far TUI Cruises isn’t getting cancellations.

The US equity and bond markets are closed today for the Martin Luther King Jr. Day.”

6 January 2012

2012 economic data continues on a positive note.

Ian Copelin, Investment Director, WEALTH at work comments,"Yesterday an ADP Employer Services report showed US companies added 325,000 employees in December, nearly double the number economists had projected.

Today’s US jobless rate declined to a near three-year low, showing that the employment market gained momentum heading into 2012.  Government statistics showed employers added 200,000 employees – a Bloomberg survey suggested that the median projection was for a gain of 155,000.  Consequently, the unemployment rate unexpectedly fell to 8.5%, the lowest since February 2009, while hours worked and earnings both climbed.

This is a very positive sign:  sustained employment growth is needed to chip away at joblessness, which will help support household spending (which accounts for two-thirds of the world’s largest economy).

The fact the we have a had a number of better-than-expected economic data releases is a good sign that investors have become too gloomy as they focus on, and obsess about, the risks from Europe.  As I have said a number of times, recent stock market weakness has been caused by indiscriminate selling and as a result global equity markets are already pricing in something catastrophic and any good news should have a positive impact on the market.  Long may this good news continue!"

3 January 2012

After a year of economic crises investors welcome in 2012.

Ian Copelin, Investment Director, WEALTH at work comments,"After a disappointing and tough 2011 (where investors were impacted by natural disasters and economic uncertainty), investors greeted the start of 2012 with optimism as better than expected economic data sent global equity markets surging.

Data released this afternoon showed that US manufacturing grew in December at the fastest pace in six months.  The Institute for Supply Management’s factory index climbed to 53.9 last month from 52.7 in November (50 is the dividing line between growth and contraction) and is a good sign that the world’s largest economy is weathering the Europe’s sovereign debt crisis and global economic activity is showing signs of life.

As a result, the FTSE-100 was up 127.63 points or 2.29%, reaching its highest level since the end of October, having fallen 327.66 points or 5.6% during 2011."

9 December 2011

UK equities reverse earlier losses.

Ian Copelin, Investment Director, WEALTH at work comments, “Yesterday’s market volatility (see below commentary) has continued this morning after European leaders failed to forge a unanimous accord, coupled with mixed economic data from China, Japan and South Korea overnight.
The FTSE-100 initially open 43 points lower, but is currently (11am) up 32 points!

China’s inflation (Consumer Prices Index) slowed to 4.2% year-on-year from 5.5% last month, while industrial production rose 12.4% year-on-year down from 13.2% last month and was less than forecast (12.6%).

Bringing down China’s inflation is a good thing (earlier this year it was running at 6.5%) and today’s data bolsters the case for more stimulus measures to help keep the world’s second-largest economy growing.

Japan’s economy grew less than the government’s initial estimate last quarter – although Japan’s growth rebounded strongly in the aftermath of the March earthquake, it was less than initially estimated (GDP increased at an annualised rate of 5.6% over the last quarter, compared with a preliminary figure of 6%).

In South Korea, the central bank warned that it may cut its economic growth forecast for next year if Europe’s crisis worsens beyond the first quarter.”

8 December 2011

UK equities reverse earlier gains.

Ian Copelin, Investment Director, WEALTH at work comments, “It was another volatile day for the FTSE-100.  Having opened on a firm note, the Footsie went even higher following the announcement from the US Labor Department that less Americans than expected filed applications for unemployment benefits last week (jobless claims fell by 23,000 to 381,000 in the week ended 3rd December), a signal that the US economy continues to show solid momentum (the US job market has been the Achilles heel of its recovery – so this improvement is very positive).

Unfortunately, the Footsie reversed a 58 point rise and ended the day down 63 points (or 1.14%), following a release of a document from the European Banking Authority which said that Europe’s banks will need to raise €114.7 billion in fresh capital as part of measures introduced to respond to the sovereign-debt crisis.  German banks need €13.1 billion, Italian banks €15.4 billion and French banks €7.3 billion.  Spanish bank, Banco Santander (which bought Abbey National and Alliance & Leicester in the UK), needs to raise €15.3 billion alone.

British banks don’t need to raise fresh capital.

Elsewhere, the Bank of England announced that it is keeping interest rates unchanged at 0.5%, while the ECB cut interest rates by 25 basis points to 1%.  Both announcements were widely expected.”

6 December 2011

Its another week of Europe.

Ian Copelin, Investment Director, WEALTH at work comments “Italian borrowing costs dropped yesterday as Italy’s new Prime Minister, Mario Monti (the technocrat who replaced Silvio Berlusconi last month), announced a €30 billion package of new austerity and growth measures.  Under Mario Monti’s plans, Italy will balance its budget by 2013 by increasing taxes, cutting budgets and reforming pensions.  The markets reacted positively:  Italy’s generic 10-year bonds rose strongly, reducing the yield from 6.682% to 5.952% (over 1.3% lower than its high on 25 November); while the main Italian stock index (the FTSE MIB) rose 2.91%.

The German Chancellor, Angela Merkel, and French President, Nicolas Sarkozy, again stated their intentions to push for a rewrite of the EU’s governing treaties to tighten economic cooperation as a first step to ending the debt crisis at this week’s EU summit.  During the talks over lunch at the Élysée Palace, the two leaders also agreed to propose automatic penalties for eurozone countries that exceeded deficit limits and the creation of a monetary fund for Europe.  This helped European equity markets, with the Stoxx Europe 600 index extending its biggest weekly rally since November 2008 with a rise of 0.8%.

The credit rating agency, Standard & Poor’s said it may downgrade credit ratings across the Euro region.  S&P said that ratings could be cut by one level for Germany, Netherlands, Finland, Luxembourg, Belgium and Austria and by up to two notches for the other eurozone countries (France, Italy, Spain, Ireland, Italy, Portugal, Malta, Estonia, Slovakia and Slovenia), with the exception of Cyprus (which is already on a negative outlook) and Greece.

Although the actions of the last couple of years have shown that the individual eurozone governments are not prepared to act collectively to find a long-term solution in a way that convinces markets, Standard & Poor’s actions were criticised by many in the market for again injecting itself into the political process, ahead of this week’s Euro summit aimed at ending the sovereign-debt crisis (S&P downgrading the US in August following government gridlock over the US debt ceiling).” 

2 December 2011

Footsie heading for the biggest weekly gain since 2008.

Ian Copelin, Investment Director, WEALTH at work, comments “UK equities have climbed again this morning, with the FTSE-100 currently (11.15am) up 80 points or 1.46% - extending its largest weekly rally since November 2008.  The FTSE-100 is currently up just over 400 points or 7.8% on the week, after six central banks (including the Bank of England) agreed to lower interest rates on US dollar loans, which should encourage lending between banks and boost lending to households and businesses.

This was a very big and positive coordinated move, as the inability of banks to access funds in the market had clearly become very stressed and was a key area of concern for the market.

The market has also been helped by China’s decision to cut its reserve ratio for banks by 50 basis points, coupled with better-than-expected US manufacturing growth (growing at the fastest rate for 5 months) and consumer confidence (the index increased to 56.0 from a 40.9 reading and an expected reading of 44.0) and a rally in French and Spanish bonds.

The German Chancellor, Angela Merkel, also repeated her wish to rework the euro area’s rules over budget monitoring, while the French President, Nicolas Sarkozy, called for more discipline and penalties for countries that break fiscal rules.

All eyes are now on US payrolls and unemployment data, due at 1.30pm (UK time) today.  According to the median forecast from 90 economists, the Labor Department report may show payrolls climbed by 125,000 in November after rising 80,000 in October, leaving the jobless rate at 9.0%.”

29 November 2011

George Osborne makes his Autumn Statement to the Commons.

Ian Copelin, Investment Director, WEALTH at work comments “The Chancellor of the Exchequer, George Osborne, today gave his Autumn Statement to the House of Commons.  It was keenly awaited by the markets given the backdrop of global uncertainty and slowing economic growth due to the European debt crisis.

It was announced that the Office for Budget Responsibility (OBR) now estimates that the UK economy will grow by 0.9% in 2011 (versus an earlier estimate of 1.7%) and 0.7% next year (versus 2.5% previously).

Consequently, George Osborne said that the government will now have to borrow more and extend spending cuts to narrow the budget deficit - which is now expected to be £120 billion during the next financial year (ending March 2013), versus his previous forecast of £101 billion.

As a result, George Osborne announced that the duration of his austerity plan will be extended by two years - spending will be cut by 0.9% a year in real terms starting in April 2015, adding to £80 billion of reductions he already planned, allowing him to meet his target of eliminating the structural budget deficit.

George Osborne also said that he was cancelling the 3p per litre increase in fuel duty which was scheduled for January 2012 and said that the government will provide funds to limit rail fare increases to RPI plus 1 percentage point, rather than 3 percentage points.

The market reacted positively to the statement:  as I write (3.15pm), 10-year gilts have advanced, with yields down 4 basis points at 2.23% (well below the 2.35% for the equivalent German bonds); the pound has strengthen to $1.562 against the US dollar; and the FTSE-100 has risen 10.6 points or 0.2%.”

28 November 2011

US Shoppers send equities higher.

Ian Copelin, Investment Director, WEALTH at work comments “The FTSE-100 today rose for a second day, after Thanksgiving retail sales climbed to a record coupled with speculation that European leaders will boost efforts to end the debt crisis.

The FTSE-100 soared 148.11 points or 2.87%, while in the US the S&P 500 jumped 33.88 points or 2.92%.

According to early estimates by The National Retail Federation, a record 226 million shoppers visited stores and websites during the four-day holiday weekend starting on Thanksgiving Day (up from 212 million last year).

The average shopper spent $398.62 over the weekend, up from $365.34 last year – a very encouraging sign for consumer spending and taken with other recent economic data and indicators, it suggests, in stark contrast to the gloom and doom that had been expected by the markets, that the US economy is continuing to grow.

In Europe, reports suggest that the German Chancellor Angela Merkel and French President Nicolas Sarkozy are discussing a fast-track stability agreement.  Under the deal, member states will commit to greater fiscal discipline without waiting to change European Union treaties.  If correct, this is very positive as it and shows that a sense of urgency is finally starting to develop among European leaders.”

21 November 2011

US Budget Gridlock.

Ian Copelin, Investment Director, WEALTH at work comments “Having fallen every day last week, as surging borrowing costs for Italy and Spain heightened concern that the debt crisis in Europe is spreading, the FTSE-100 is down again this morning.  The FTSE-100 is currently down 100 points or 1.86% on the day at 5,263.

The European debt crisis has toppled its fifth elected government over the weekend.  However, unlike Greece and Italy, which fell without a public vote, Spain elected the People’s Party, led by Mariano Rajoy, who won the biggest parliamentary majority in a Spanish election in 29 years.

In the US, the bipartisan Congressional super-committee have a deadline of Wednesday 23 November to pass legislation on a US$1.2 trillion deficit reduction.  The market appears focused on the Wednesday deadline (however, the Wednesday deadline is for getting legislation out of committee and under panel rules a draft of the legislation must be publicly available 48 hours beforehand – i.e. today).  At present, Republicans and Democrats appear to be making little progress (Democrats are seeking tax increases on high earners, while Republicans are pushing to extend President George W. Bush’s tax cuts and want cuts in the Democrats Medicare entitlement program) and if Wednesday’s legislative deadline is not met, then the earlier enacted automatic spending cuts (which falls equally on domestic and military programs), will take place.

However, of greater significance is the message that this will give the markets – a failure to agree budget cuts will highlight the vacuum at the top of US politics and could point to more stalemate for another 12 months until the next US presidential election on 6 November 2012.  This could prompt a further downgrade of US debt from either Moody’s or Fitch who still have the US on a AAA credit rating, given that S&P reasoned that its credit downgrade in August was due to the political inability to get anything done and the soaring debt burden.”

11 November 2011

Europe.

Ian Copelin, Investment Director, WEALTH at work comments “Global equity markets are looking a little more kindly on Europe this morning ahead of an Italian Senate vote on austerity measures and a new unity government takes charge in Greece – the FTSE-100 is currently 5,480 up 0.65%.

Italy’s Senate will vote on debt-reduction measures today in an attempt to shore up investor confidence and pave the way for a new government that may be led by former European Union Competition Commissioner Mario Monti.  The upper house started debating the measures this morning in Rome and should vote this afternoon.  The Chamber of Deputies will then give final approval tomorrow – once approved it is expected that Silvio Berlusconi will resign as Prime Minister.  Berlusconi offered to resign on Tuesday (8 November), once the budget measures were approved by parliament, following a series of defections left him without a majority.  On Wednesday (9 November) Italy’s 10-year bond yield rose to a euro-era high of 7.25% (a level that prompted Greece, Portugal and Ireland to seek bailouts).  This prompted equities to sell-off sharply.  However, sentiment improved yesterday following a successful treasury auction - Italy sold €5 billion of one-year bills, the maximum for the auction, with a yield 6.087%.  Demand was 1.99 times the amount on offer.  Last month’s auction (on 11 October) was 1.88 times covered and the yield was 3.57%.

In Greece, a new unity government led by Lucas Papademos will be sworn this afternoon in Athens with a mandate to implement budget measures and decisions related to bailout on 26 October 2011 that is worth €130 billion.  Elections are expected to take place early next year – potentially on 19 February.

Yesterday, the European Commission cut its euro-region growth forecast for next year by more than half – GDP is now expected to grow by 1.5% this year and 0.5% in 2012 (compared to its earlier estimate of 1.6% growth this year and 1.8% next).”

7 November 2011

Italian Budget Vote.

Ian Copelin, Investment Director, WEALTH at work comments “UK and Asian equities declined this morning, while US futures indicate a weaker start to trading this afternoon, over concern that Europe’s sovereign-debt crisis will spread.

Italy’s parliament will vote tomorrow on the 2010 budget report.  The Chamber of Deputies failed to rubber-stamp the routine measure in an initial ballot last month, prompting Berlusconi to call a confidence ballot, which he won with 316 votes - barely a majority in the 630-seat body.  A second defeat on the budget law would likely lead to another confidence vote, with the defections threatening the outcome.

Italian governments routinely call confidence votes to bring rebellious lawmakers into line and speed the passage of legislation (Berlusconi has already used the mechanism more than 50 times since his election in 2008).  This time, however, it may be different - two of his allies defected to the opposition last week, while a third quit last night.  Many others have called for Berlusconi to resign and allow a more broadly backed government.”

4 November 2011

Greece Abandons Referendum.

Ian Copelin, Investment Director, WEALTH at work comments, “Most European equity markets climbed for a third day this morning after Greece reduced the risk of a disorderly default by abandoning a referendum on the European bailout plan. Asian exchanges also gained overnight, while U.S. index futures were also showing a firmer start to trading.

The FTSE-100 was up 0.9% (11am) – but is still down 1.86% on the week.

Greek Prime Minister George Papandreou yesterday blinked in his game of chicken and abandoned his planned referendum after it split his party and drew unprecedented warnings from euro leaders that it may cost Greece its membership in the 17-nation currency club. The news has helped instil some confidence back into a market that remains nervous - George Papandreou is facing a confidence vote in parliament today that will determine whether he survives or elections are called.

In the US this afternoon, we have the release of monthly employment data – this is always closely watched, but more so given the Federal Reserve said in its policy statement on Wednesday that recent indicators point to weakness in the labour market."

3 November 2011

Bailout for Greece in Jeopardy.

Ian Copelin, Investment Director, WEALTH at work comments “The strong rally in October came to an abrupt end at the start of the week after the Greek Prime Minister, George Papandreou, unexpectedly announced plans for a parliamentary confidence vote and referendum on the rescue pact.

Although Europe’s financial turmoil is dominating media headlines and the Group of 20 summit in France, equity markets have started to recover after yesterday’s statement from the US Federal Reserve saying that economic growth had strengthened and that it is prepared to take action to safeguard the recovery and today’s surprise cut in European interest rates by 25 basis points to 1.25%.

Although the European Central Bank (ECB) was under pressure to reverse this year’s two rate increases, only 4 out of 55 economists expected a rate cut.  This was seen as a very positive and bold move by Mario Draghi, in his first meeting in charge of the ECB.

European leaders last night raised the prospect of the 17 member area breaking apart, with France and Germany saying they would treat Greece’s surprise referendum on a second bailout as a vote on its Euro membership – in addition, the German Chancellor, Angela Merkel, and French President Nicolas Sarkozy, said that they would withhold the €8 billion of European aid if it votes against the package agreed upon only last week.

Having fallen 4.92% over Monday & Tuesday, the FTSE-100 has recovered just over 2.5%.”

31 October 2011

S&P Heads for Best Month Since 1974.

Ian Copelin, Investment Director, WEALTH at work comments “Although US futures imply a weaker start to trading today, the US market has had four straight weekly advances and as a result, the S&P 500 Index is poised for the biggest monthly rally since October 1974 (when it rose 16.3%).

The index advanced 3.78% last week and has climbed 13.58% so far this month.

Elsewhere, Japan intervened to weaken the yen for the third time this year and pledged more sales after the currency’s gain threatened its recovery from the earthquake and nuclear disaster earlier this year.

The Japanese Finance Minister Jun Azumi said the move was carried out to combat “one-sided speculative moves that don’t reflect the economic fundamentals of our economy.”

The yen has weakened around 4% this morning.

There was growing frustration among Japanese exporters amid the strengthening exchange rate coupled with the recent flooding in Thailand that has impaired production.  For example, Honda, Japan’s third-largest carmaker, today reported second-quarter profits that missed analysts’ estimates and withdrew its forecasts for this year as the strength of the yen is eroding the value of overseas sales and the flooding in Thailand has crippled its production in Southeast Asia.  Honda made more than 170,000 cars in Thailand last year - the flooding in Thailand has affected 80% of Thailand’s 77 provinces since July.”

27 October 2011

Grounds for Optimism

Ian Copelin, Investment Director, WEALTH at work comments, “The FTSE-100 Index jumped 2.89% today (27 October 2011) to 5,713.82, extending the recent rally - the index is headed for its fifth week of gains and has now rebounded 17.36% (845.22 points) from the intra-day low on 4 October 2011.

Today’s rally has been led by financials and miners, after the euro area’s leaders persuaded bondholders to take a 50% write-down on Greek debt and expanded the European Financial Stability Facility (the bailout fund) to €1 trillion in a bid to contain the debt crisis that had threatened to spread to Italy and Spain.  Barclays advanced 17.6%, while Aviva jumped 8.84% and Xstrata gained 9.28%.

Measures also included a recapitalisation of European banks and a potentially bigger role for the IMF in strengthening the bailout fund.

However, leaders tiptoed around the broader role of the politically independent ECB in keeping the euro sound, making no mention of its bond-purchase program in a 15-page statement.  The Frankfurt-based central bank was said to be purchasing Italian debt today - Italy plans to auction around €8.5 billion of bonds tomorrow.

Although a lot of details are still to be fleshed out, it is a step in the right direction as the overall headlines are positive.

Elsewhere, the US Commerce Department announced that the US economy grew at a 2.5% annual rate in the third quarter (up from 1.3% in the second quarter and its fastest pace in a year) as Americans reduced savings to boost purchases and companies stepped up investment in equipment and software.  It was only a few weeks ago that the market was fearing that the US economy would slip back into a recession!”

14 October 2011

The Rally continues

Ian Copelin, Investment Director, WEALTH at work comments, “Global equities have extended last week’s gains, with the FTSE-100 climbing another 3.07% over the week, while the S&P 500 is, as I write, up nearly 5%.

Markets have been helped by today’s US retail sales data (which topped forecasts) and optimism that euro-area policy makers will contain the region’s debt crisis.

Group of 20 finance officials and central bankers (who will meet to prepare for a gathering of leaders in Cannes, France on 3 November 2011) are discussing an expansion of the IMF’s role as part of a global G-20 agreement.  Earlier this week, Olli Rehn, the European Union’s Economic and Monetary Affairs Commissioner, said that the euro area is approaching a consensus on resolving the debt crisis.

Although some market commentators have pooh-poohed this rally, there does appear to be a different mindset emerging.  This may be the very reason that this time round, the market rally has lasted longer than previous ones – the first leg of any recovery in equity markets is an end to the selling and hopefully we have now reached this point.”

10 October 2011

Europe Pledges Debt Resolution

Ian Copelin, Investment Director, WEALTH at work comments, “The FTSE-100 added to last week’s gains by climbing another 1.8% today (10 October 2011), after the leaders of France and Germany pledged to deliver a plan to stem the debt crisis in three weeks.  The FTSE-100 has now risen 10.89% since its low last Tuesday (4 October 2011.)

European leaders today postponed a debt-crisis summit, planned for 18 October, amid tensions between Germany, France and the European Central Bank over possible deeper-than-planned write downs of Greek bonds.  The meeting will now be held on 23 October.

The German Chancellor, Angela Merkel, and the French President, Nicolas Sarkozy, said yesterday that they will deliver a plan to recapitalise European banks and address the Greek debt crisis before the Group of 20 summit on 3 November.

This is very good news as it commits the two most important European Union leaders to deliver results and provide the market with a fixed date - hopefully this will help curb the recent day-to-day volatility.”

6 October 2011

Optimism

Ian Copelin, Investment Director, WEALTH at work comments, "Global stock markets have rallied strongly over the last couple of days (the FTSE-100 has risen 7%), as economic data topped estimates, investors speculated Europe will act to contain the region’s debt crisis and the Bank of England raised the ceiling for quantitative easing to £275 billion from £200 billion.

Yesterday (5 October 2011), reports showed US private employment expanded, while the Institute for Supply Management’s non-manufacturing index fell to 53 (compared to forecasts of a drop to 52.8).  Today, we had US Labor Department figures which showed claims for unemployment benefits rose less than forecast last week to a level that shows the pace of dismissals may be slowing.

In Europe, policymakers have started using words such as ring-fencing, containing and firewalls, over the last couple of days – a sign that they are finally understanding that they can no longer continue simply kicking the can down the road, but have to take action to prevent the debt crisis spreading to Italy and Spain.

Although I run the risk of sounding like a broken record, it is important to emphasise that the recent stock market weakness has been caused by indiscriminate selling caused by the market becoming overly focused on the daily news flow on Greece.  It should not be forgotten that economic data has come in ahead of expectations – economic data currently indicates that the global economy is not going into a recession, but is simply growing slowly.”

5 October 2011

Assistance for Banks

Ian Copelin, Investment Director, WEALTH at work, comments  “Yesterday (4 October 2011) US stocks erased earlier losses of around 2.2% to close up nearly 2.3% - stocks rallied over 4.1% in the final hour of trading, amid speculation that European Union officials were examining how to recapitalise the region’s banks or shield them from the sovereign-debt crisis.

For the first time, it appears that politicians are, albeit behind the scenes, making a determined effort to get more ahead of the curve and taking a lead in dealing with the euro debt crisis.  Consequently, European & UK have all rallied strongly this morning – the FTSE-100 and the DJ Euro Stoxx are both currently up around 2.6%.

Equities have also been helped by the Federal Reserve Chairman, Ben Bernanke, after he said the central bank ‘will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery.’  This is a clear signal that he is prepared to push forward with further expansion of monetary stimulus if needed, despite recent heavy criticism from Republicans who are concerned that he’s fanning inflation.”

4th October 2011

Greece, Greece and more Greece.

Ian Copelin, Investment Director, WEALTH at work, comments  “Yesterday (3 October 2011),  economic data released on manufacturing industries and construction spending topped market estimates – providing more evidence that the US (the world’s largest economy) and the UK economy are not going into a recession, but is simply growing slowly.

In the UK, a manufacturing index unexpectedly increased in September from a 26-month low.  The gauge, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, rose to 51.1, the highest reading in three months, from a revised 49.4 in August.  The measure was expected to fall to around 48.5 from an initially reported 49 in August.  A level above 50 indicates expansion.

In the US, the Institute for Supply Management’s (ISM) factory index rose to 51.6 in September from 50.6 in August - a reading higher than 50 indicates that respondents are seeing better conditions, while an index reading above 42 is normally considered the benchmark for economic growth (below 42 implies a recession could be just around the corner).  Construction spending in the US also unexpectedly rebounded in August, climbing 1.4%.

Unfortunately, equity markets erased early gains on the back of this better than expected data and again focused on the Greek debt crisis, as European finance ministers meet to decide on whether Greece should get its next tranche of fiscal aid.

Ministers have started to drop hints that bondholders may have to take bigger losses on Greek debt in a second aid package, as Greece’s economic outlook has deteriorated.

Consequently, financial stocks were among the worst performers.  Dexia, Belgium’s biggest bank by assets, said looking at steps to fix the company’s ‘structural problems’ and that it was discussing a possible breakup of the company after the debt crisis reduced its ability to obtain funding.  Last week, the cost of insuring Dexia bonds hit an all-time high of 900 basis points, nearly double the level just two months ago - Dexia has been among the hardest hit by the closure of the interbank lending markets and the continuing unwillingness of investors to buy the bonds of eurozone banks.”

29 September 2011

US Data Surprises and Angela Merkel's Victory

Ian Copelin, Investment Director, WEALTH at work comments, “Equities have advanced today after economic data showed the US economy grew faster than earlier estimated at a 1.3% in the second quarter, whilst applications for jobless claims declined by 37,000 to 391,000 versus expectations of a drop of just 8,000 to 420,000.

Markets were also boosted by news that Germany’s lower house, the Bundestag, approved an expansion of Europe’s temporary rescue fund, the EFSF, with 523 votes in favour and 85 against.  Crucially, Angela Merkel won the vote without relying on the opposition (it had been feared that dissenters within her party would be high).  Consequently, the yield on the Greek 10-year bond fell for the third day, declining 17 basis points – which reduced yield spread to benchmark German bunds down by 13 basis points to 2,090 basis points.

At 3.15pm, the S&P 500 index is currently up 1.54% or 17.72 points, while the FTSE 100 is currently unchanged on the day, having earlier been down 0.82% or 42.7 points.

This suggests that global equity markets are already pricing in something catastrophic and any good news will have a positive impact on the market.”

28 September 2011

FTSE-100 Climbs for a Fourth Day

Ian Copelin, Investment Director, WEALTH at work comments, “What a difference a few days make!

Last week more than $3.5 trillion was wiped from equity values globally amid concern policy makers were struggling to contain a debt crisis that has Greece on the verge of a default.

This week, sentiment in equity markets has changed markedly - investors have become increasingly confident that European policy makers will now reach an agreement to successfully contain the debt crisis.

As a result, yesterday the FTSE 100 index had its best day for 16 months and is today, currently (11.46am) enjoying its fourth day of consecutive gains, extending its advance to 4.6%.”

26 September 2011

IMF - World Bank Meetings

Ian Copelin, Investment Director, WEALTH at work comments, "UK equities have this morning reversed a weak opening following disappointment that we didn't see anything concrete out of Europe or the IMF over the weekend - politicians and central bankers from around the world piled on the pressure over the weekend by urging European policy makers to combat the Greek-led turmoil.

Having initially opened down 92.78 points, the FTSE-100 is currently (9:50am) up 14.78 points.

Although it is difficult not to panic given the share price volatility and the negative tone of some of the politicians (including US Treasury Secretary Timothy Geithner) and influential investors (such as George Soros), the words will stop and action will have to be taken.  When this happens, confidence will quickly return, which should result in a strong equity market rally - equity markets are already discounting a Greek default and global recession."

23 September 2011 

22 September 2011

Ian Copelin, Investment Director, WEALTH at work comments "UK equities have dropped this morning (22 September 2011), after the US Federal Reserve warned of ‘downside risks’ to the US economy.

19 September 2011

Market Update

Ian Copelin, Investment Director, WEALTH at work comments on the recent changes in the Market.

"Global equity markets advanced strongly this week as European officials met in Poland to discuss how they can expand the new bailout fund for the euro area - the FTSE 100 index rose 30.87, or 0.58% to 5,368.41 today (Friday 16 September 2011), bringing this week's advance to 2.95%. In the US, the S&P 500 index recorded its third - biggest weekly gain since 2009, climbing 5.35% to 1,216.01 over the week and in process, trimming its 2011 loss to 3.31%.

Global markets were boosted after the German Chancellor - Angela Merkel and French President - Nicolas Sarkozy reaffirmed that Greece will remain a member of the euro and the European Central Bank announced coordinated measures with the Federal Reserve to ensure euro - area lenders have enough dollars."

 30 August 2011

US Market Update

Ian Copelin, Investment Director, WEALTH at work comments on the recent changes in the US Stock Market.

"US markets opened as usual yesterday (Monday 29 August 2011), after Hurricane Irene failed to shut financial markets.

US stocks advanced strongly following news that US consumer spending has rebounded calmed fears of a recession, coupled with the announcement that Greece's second and third biggest banks ( EFG Eurobank Ergasias and Alpha Bank) planned to merge. At the close, the S&P 500 was up 33.28 points or 2.83% at 1,210.08, while the Dow Jones rose 254.71 points or 2.26% to 11,539.25.

Since the S&P 500 hit its recent low of 1,119.46 on 8 August, the index has recovered 8.09%, while the Dow has gained 7.64% since its recent low of 10,719.94 on 10 August - and is now less than 40 points (0.33%) from where is started the year (11,577.51)."

19 August 2011

US Market Update

Ian Copelin, Investment Director, WEALTH at work comments on the recent changes in the US Stock Market.

"Last night the Dow Jones lost 420 points after the Federal Reserve Bank of Philadelphia said its index of manufacturing in the region fell to minus 30.7 in August - the weakest reading since March 2009.

Investors interpreted the reading as a signal that the US was entering a recession and provided one more dose of uncertainty to markets already dealing with Europe's debt crisis, and the aftermath of Standard & Poor's downgrade of the U.S credit rating.

Although there are real economic indicators to be concerned about, I believe the degree of the reaction is very much overdone and bordering on hysterical.  It is very clear that we currently have an equity market driven by fear and emotion, and one that is ignoring investment fundamentals.  Yes, it is likely that the US economy is deteriorating and may expand less than previously forecasted in 2011 and 2012 because of potential political paralysis and fiscal tightening, but fears of a new recession are overstated.  I believe that we are seeing a slowing of growth, not a collapsing economy.

This view is also being aired (but ignored by the market), by some of the regional Federal Reserve Banks, and supported by for example, the Federal Reserve Bank of New York President, William Dudley, who stated during a speech in Newark, New Jersey on 18 August 2011, that "we very much still expect the economy to recover, with growth during the second half of 2011 being 'significantly firmer' than in the first six months, and the risk of recession remains 'quite low'."

I am not the only person to believe that the market has overreacted and is being driven by fear, rather than economic reality.  William Buffet, the billionaire US Investor, recently stated that this market decline provided an opportunity for buying stocks on sale."

10 August 2011

Will the markets go up?

9 August 2011

What is happening in the stock market?

Global equity markets have sustained more heavy losses this week. Concerns that the US may be facing another recession and worries over Europe's debt crisis are seeing markets fall.

As the market has become less confident about the forecasts for economic growth, it has become more sensitive, increasing market volatility.

Does this affect my investments?

Ian Copelin, Investment Director, WEALTH at work comments, "Falling stock market values do have a negative impact on client portfolio’s but I am not going to overreact to this weakness caused by short-term newsflow, as that is not a well-reasoned market outlook as we are concerned with long-term investments. We look at trends in company earnings, and these are still seeing positive revisions."

Shall I remain invested?

Ian Copelin, Investment Director, WEALTH at work comments, "I have never been more certain that global equity markets will rally strongly from these levels. My view is, as economic growth picks up (as it did summer/autumn 2010) it will take the equity market up with it. Falling oil prices and the end of disruption to the supply chain caused by the Japan earthquake will soon stimulate economic growth which should in turn prove positive for stock markets."

Is now the right time to invest?

 Paul Morton, Investment Planning Director, WEALTH at work comments, "Companies have been reporting increasing revenues and forecasts are continuing to follow this trend. Following the equity market falls, share prices are now looking very cheap.

Holding cash, or equivalents, during volatile markets may be comforting; however, cash is not a good long-term investment. With interest rates on the majority of deposit accounts below inflation, cash is certain to depreciate in value.

History tells us equities (shares) will almost certainly outperform cash over time and by holding cash at this point you are betting you can time the move back into equities when the market rallies.

Whilst it is impossible to time the best entry point to the market, you can be sure, share prices are cheap and you are paying less now for businesses which have not fundamentally changed in such a short time period."

What happens next?

It should be remembered that the US economy grew at a 1.3% annual rate during the second quarter of 2011. Also, a year ago, global equity markets fell around 15% as investors speculated the US economy would contract.

Ian Copelin, Investment Director, WEALTH at work comments, "A year ago, I remained confident during the drop, and was proved right as global equity markets rallied strong (20+%) from their August lows. In the US, the S&P 500 earnings are forecast to rise 18% this year and by 14% next year.

It should be noted that more than 75% of US companies that have reported earnings for the second quarter of 2011 have exceeded earnings estimates - with total income topping projections by a massive 5.2%.

The combination of falling prices and rising profits has driven the price-to-earnings ratio down, making equity valuations look very cheap."

Paul Morton, Investment Planning Director, WEALTH at work also comments, "If any clients have any further concerns, then please do not hesitate to contact your Strategic Investment Planner".