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*** Record-breaking week for indices
*** Allied's sweetening attempts backfires *** The hedge fund misperception...is the oil price about to ease?...who's gonna blink first... and more...
------------------- – Indices in the UK and across Europe hit three-year highs on Friday.
– The FTSE 100 climbed 1% during last week, to close at 5,077 before the weekend – its highest level since June 2002. The FTSE 250 rose 1.2% last week, to trade at 7,354 by Friday's close.
– And just through the Chunnel, the FTSE Eurofirst 300 – which consists of pan-European blue chips – traded 1.5% up last week, and the Paris Cac 40 gained 36 points, to both break three-year records.
– So what's behind the sudden surge in indices? On Friday buoyant oil stocks – encouraged by the oil price trading at ten-week highs and closing in on $60 a barrel – helped lift the FTSE 100. Both BP and Shell traded some 2% up, while Paladin Resources closed 8% in the black.
– But is there more of this to come for the indices? Not likely. '[W]e have seen front month crude oil futures pass $59 per barrel, pushing towards the psychological $60 per barrel that may see investors' nerves break, with the resultant negative impact on the equity markets which have so far managed to shrug off the usual concern over the high price of oil,' IG Index's Mark Chesterman said on Friday.
– Meantime, drinksmaker Allied Domecq traded 2% down at 280p after Constellation Brands withdrew its bid for the group. That leaves French firm Pernod Ricard as the sole bidder for Allied – a deal which looks sure to go ahead.
– But why did Constellation withdraw its bid, after months of work and preparations? Well, that has to do with Allied's slightly back-handed attempts at convincing Pernod to sweeten its deal...in a move that may have backfired for them.
– And according to property group Rightmove, annual asking prices for properties fell 2.4% from some 5% as estate agents try to deal with an increasing number of homes for sale. The annual increase rate is the lowest since 2001 – when the survey first started, and is looking likely to hit zero in two months time, meaning that buyers are either unable or unwilling to pay what house sellers are demanding.
– Meantime mortgage lending and approval figures from the BBA and the Building Societies Association are due out later today.
------------------- – So what's the biggest problem facing hedge funds today? It seems that the entire sector, despite success in attracting assets, remains 'suffused with misperception, fuelled in no small part by excitable media', says MoneyWeek's Tim Price. One of these misperceptions is that 'hedge funds represent some sort of homogenized asset class'. This is not the case, says Tim...as they're not some 'box-tickable asset class'...
– Oil imports to China declined, while US oil inventory increased for the first quarter of this year. Could this mean that the 'exaggerated energy demand' in the past few years may be about to collapse? asks Morgan Stanley economist Andy Xie. In fact, 'economic fundamentals for oil look very weak at present and into next year,' he says. MoneyWeek may not subscribe to this view – but it remains an interesting and valid alternative viewpoint...
– Why have stocks and bonds been rising together for the past two months? The recent spate of data out of the US can't be good for both asset classes...and both stocks and bonds can't be right. But it does seem like they're likely to part company pretty soon, as the stocks should start falling back as the 'deterioration in the economy becomes increasingly clear', says MoneyWeek's American sister Money Chronicles.
Published in Money-Morning
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by
Heather D'Alton
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