Last week?s slew of generally positive corporate earnings provided a lift to major stock markets across the globe. Most of the pickup in share prices occurred late during the week following the release of US second quarter of 2003 corporate reports, which included better-than-expected results from Citigroup, the world?s largest financial services group and Bank of America (BAC). Citigroup reported a 5.4% rise in its net income and announced a 75% jump in its dividends. BAC used its significant exposure to the housing boom to boost second quarter earnings by 23%. BAC also increased its dividends by 25%. Citigroup and BAC gained 4.9% and 3.2% respectively for the week ended Monday 14th July 2003.

Last week, the widely-followed equity index, the Morgan Stanley Capital International (MSCI) World equity index edged 0.3% higher. The US Dow Jones Industrial Average (DJIA) Index slipped by 0.9%, while the technology-rich Nasdaq composite index moved in the opposite direction and witnessed five consecutive days of gains (+2.0% for the week). The Germany?s Dax, the Swiss market and the French CAC-40 indices climbed by 1.9%, 1.0% and 0.3% respectively. Dwindling hopes of a quick recovery in Japan pushed the Nikkei 225 index lower by 0.4% during the week under review.

The attraction for equities strengthened further as analysts raised their earnings estimates and recommendations for several stocks. Wall Street reacted positively to the bullish comments of US brokerage house Merrill Lynch about the outlook of chipmaker Intel and European telecommunication operator Deutsche Telekom.

On the macro-economic front, the US economy, the world?s largest economy, posted mixed data. Last week, the US Labour Department reported that Producer Price Index for finished goods increased by 0.5% in June, driven primarily by a strong rise in energy prices. This piece of news, which indicated a possible return of pricing power, helped in calming investors? concerns about deflation.

London bourse weakened

The US trade deficit increased slightly in May to $41.8 billion as the value of imports rose at a faster pace than that of exports. The US Commerce Department said that strong demand helped drive imports, while exports benefited from the depreciating US dollar. New claims for unemployment benefits jumped to 439,000 for the week ended 5th July 2003, well above analysts? expectations.

Last Thursday, the Bank of England cut UK interest rates by a quarter of a point to 3.5 per cent, the lowest level since 1955. The statement that accompanied the cut from the Bank said: ?The global economic recovery has remained hesitant. Although the preconditions for recovery remain in place, the prospect for external demand for UK output is weaker than previously expected.? The London bourse weakened on the news (-0.6%) while bond (high quality) prices rallied amid higher uncertainty and lower interest rate environment. Investors? faith in equities were renewed following the release of strong sales report from Burberry Group, a luxury retail outfit. The earnings news coupled with expectations of improved consumer sentiments (due to lower interest rates) sparked a rally in British retail stocks. Last week, shares of Burberry, Next and Marks & Spencer jumped by 9.6%,7.0% and 7.2% respectively.

Going ahead, share price movements are expected to be driven by forthcoming release of corporate earnings reports. The recent trend of increase in dividend payouts is regarded as another attraction for equity investors especially in an era of low returns from American and European bonds. Analysts expect investors to take some profits from bonds and high-beta (risk) stocks and to rotate towards high-yielding stocks in the low-risk segment.

Contribution by Confident Asset Management