A solid finish in the US on Friday night as slightly better than expected jobs figures, manufacturing data and a rise in the US dollar combined to push markets higher.
The US dollar hit a five week high and then eased, commodity prices were higher for non-US dollar reasons, and investors were cheered by the stream of sort of ‘good’ news.
But Microsoft’s decision to abandon its Yahoo bid will hit sentiment tonight in foreign markets. Microsoft shares will rise, Yahoo shares will plunge tonight.
But that’s a sideshow: compared to the US Australia is doing very well and yet there’s a feeling here among investors that things may not be as bright in the near terms, even after the $13 billion bid for Origin Energy by BG of Britain set the oil and gas sector alight.
Interest rates are high and won’t change this week, the economy is slowing, but from very high levels of demand, although housing and retailing are starting to do it tough in some sectors.
Shares seem on track to improve over the next few weeks as the bearishness of earlier this year eases.
This could possibly take the US S&P 500 in the US up to around 1430 and the ASX200 up to around 6000 from around 5700 on Friday. The Futures market was tipping a 60 point rise, or around 1%, at the opening this morning here.
But the AMP’s head strategist, Dr Shane Oliver says we should watch for "renewed bout of weakness some time in the next few months as credit markets are likely to remain difficult but more importantly as global and Australian economic conditions continue to deteriorate resulting in considerable profit downgrades. While a re-test of March lows is possible, it’s unlikely that shares will make new lows though.
"Despite the uncertain near term outlook we continue to see shares being firmly back on to a sustainable rising trend by year end supported by very attractive valuations, a very stimulatory global monetary backdrop, the prospect of interest rate cuts in Australia through 2009 and expectations for stronger global growth through 2009.
"Global bond yields may still fall slightly as global growth slows. However, with yields now very low they offer very poor returns on a one-year perspective. Australian bonds offer much higher yields which are likely to fall as the RBA moves in the direction of cutting rates some time in the next year.
"It’s looking increasingly likely that the $US may be bottoming out against the euro, if it hasn’t already done so. The Fed is nearing the end of its interest rate cutting cycle whereas euro-zone interest rates will start to fall sometime in the next six months. Expect the $US to be higher against the euro by year end."
He says that a stabilisation and recovery in the $US along with slowing global growth is likely to drive a further correction in commodity prices over the next six months, including oil.
"The $A is likely to remain volatile over the next year as slowing global growth weighs on commodity prices periodically and as Australian growth slows at a time when US rates are nearing the bottom and the $US is strengthening against the euro. But still-high commodity prices and local interest rates should ensure that the $A remains reasonably strong. Expect a range for the $A of around $US0.85 to as high as parity against the US dollar over the next year."
Over the week the Dow ended 1.3% higher, Nasdaq advanced 2.2% and the S&P 500 rose 1.2%.
US market sentiment will be hit hard though (especially Nasdaq) by the news that Microsoft withdrew its bid for Yahoo yesterday.
Microsoft abandoned its bid after the two companies failed to agree on a price in talks on Friday and Saturday.
Microsoft said in a statement it offered to raise its $US44.6 billion bid by about $US5 billion, to $US33 a share. Yahoo had demanded $US37 a share.
"After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," Chief Executive Officer Steve Ballmer said in a letter to Yahoo.
"I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table, “he said.
Yahoo shares rose $US1.86 to $28.67 on Friday night, our time, Microsoft fell 16c to $US29.24.
US brokers said yesterday Yahoo shares would drop sharply in trading tonight. With the surprise loss Friday by Sun Microsystems, tech stocks could be in for a bit of hammering, even with marker bellwether, Cisco expected to do well with its latest quarterly figures this week.
On Friday the S&P 500 added 4.56 or 0.3% to 1,413.9, the Dow rose 48.2 points or 0.4% to 13,058, but Nasdaq fell 3.72 or 0.2% to 2,476.99 on that loss by Sun.
Asian
stocks had a solid week. The MSCI Asia Pacific Index added 1.6%, gaining for the second straight week.
The Index rose 7.8% last month, the biggest monthly advance since September 2005. The big driver was the rebound in Japanese shares, which has come as growth, industrial production and exports have faltered.
.But the Nikkei rose 1.3% last week, taking the seven week gain to 15%.
And China’s CSI 300 Index added 4.1% over the week after the Government eased a stock trading tax to try and reverse a near 50% plunge in the market since late last year.
It seemed to work, but most Asian stock markets were closed on Thursday for a holiday (except Japan, Australia and New Zealand). China’s sto
