Things look up for global equities

USA

U.S. market ended marginally higher over the four day trading week, as the market was closed for the Independence Day Holiday on Friday.

There were a number of economic figures released during the week, showing that the U.S. economic recovery is still on track, despite at a low pace.

Non-manufacturing ISM index, which was released on Thursday, jumped to 60.6 in June from 54.5 in May, better than market expectation of only a slight uptick and reversing some of the disappointment from the Chicago Purchasing Managers' Index released on Monday.

New orders, which is a leading indicator for future activity, gained nearly three points. The ECRI Weekly Leading Index (WLI) also gained some ground during the week, rising to 124.1 from last week's reading of 123.4. However, the confidence indicator compiled by the University of Michgan showed that consumer confidence slipped in June, but still above preliminary expectation.

However, the unemployment number showed that the job market is still weak as unemployment rate reached 6.4% and initial jobless claims rose to 430,000. Arguably, the employment figures are lagging indicators as they report what has already happened and overall, the balance is tilted to the side that the economy is still expanding.

Several blue chips have received an upgrade in ratings. Merrill Lynch included Microsoft and Wal-mart in its buy list and both stocks traded higher on the news. Merrill Lynch rose to a six month high of US$49.25, up 5.9% over the week and Microsoft gained 3.2% over the week at US$26.45.

AT&T lost 2.4% after Standard & Poor cut its corporate rating one notch to BBB to reflect the negative long term profile of its business.

This week brings the start of the quarterly earnings reporting period. Alcoa will be reporting its second quarter earnings on Tuesday, and market estimate is US$0.25 per share. General Electric will report on Friday, and market expecting US$0.38 for the 2Q.

Europe

The European markets gained for the most part of the week before giving back some of the gains on Friday due to a worse than expected consumer confidence number from U.S.

Economic news is still very mixed for European markets, but ECB President Duisenberg dampened hopes of further rate cut in the near term in a Bloomberg interview.

In the near term, European stock markets will remain buoyant by the flush of corporate deals, such as Royal Bank of Scotland's purchase of Churchill Insurance from Credit Suisse and security firm Chubb's takeover by U.S. group United Technologies.

Handset companies suffered a triple whammy after Motorola kicked off with a warning on earnings forecast, followed by Nokia, the world's largest handset maker and Texas Instruments, the world's biggest maker of chips for mobile phones.

To summarise, the outlook for the handset and the telecom infrastructure market remains challenging since operators continue to cut back spending as cash flow generation and debt reduction become the top priorities.

Japan

The Nikkei index surged to an eighth month high of 9,625 on Thursday below retreating marginally to 9548 and still up nearly 5% for the week.

The recently released Tankan report showed that the key sentiment index of large manufacturers rose to minus five from minus ten in the previous survey.

Japan's large companies are becoming less negative about their prospects over the past three months and are preparing to boost capital investment by 4.9% on average this fiscal year, reflecting an improvement in sentiment following a quick end to the Iraqi war and a containment of the SARS outbreak, which had threatened growth of Japan's key export markets.

The Japanese labor market report for May has unemployment holding steady at 5.4%. This report is an improvement from recent trends, although a sustained improvement in the labor markets is not likely until later in the year.

In addition, the preliminary report on industrial production for May shows a sharp rebound from the downturn in the previous month. Shipments and inventories both increased, and the inventory ratio fell. These figure suggest that the economy is suffering only limited adverse economic impact from the regional outbreak of SARS during 2Q.