Wednesday, 24 May 2006

Markets mixed as they re-price risk

Stock markets were mixed yesterday. The US market was down, Europe was strongly up, Asia was mixed.

 23 May closePts change% change
S&P 5001,248.29-5.49-0.4
FTSE 1005,678.7146.02.6
CAC 404,931.53118.032.5
Nikkei 22515,599.20-258.67-1.6
Hang Seng15,864.5659.040.4

However, the differences in performances largely reflect the differences in closing times.

Despite the recent volatility in markets, the OECD remains upbeat on world economic growth. From FT:

Jean-Philippe Cotis, chief economist of the Paris-based organisation, said the disruption in the markets indicated a correction in the pricing of risk more than the early stages of a disorderly unwinding of global trade imbalances.

It raised its global growth forecast to 3.1 per cent in 2006 from its 2.9 per cent projection of November. Its twice-yearly Economic Outlook said that the buoyancy of the world economy, entering its fifth successive year of expansion, was all the more remarkable for having withstood shocks, such as high and volatile oil prices.

However, Eurostat reported yesterday that industrial new orders were down in March compared to February.

The euro area industrial new orders index fell by 2.4% in March 2006 compared to February 2006. The index increased by 3.4% in February and decreased by 6.0% in January. EU25 new orders dropped by 1.7% in March 2006, after a rise of 0.8% in February and a fall of 3.7% in January. Excluding ships, railway and aerospace equipment industrial new orders declined by 1.0% in March 2006 in the euro area and grew by 0.2% in the EU25.

Which makes it yet another piece of data that contradicts other pieces of data. And with the world's main central bank having announced that further policy action would be data-dependent, no wonder markets are re-pricing risk.

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