Shares settle

25 April 2008

After some nine months of strong rallies, IC's Share Index took something of a breather in February. It edged up just 2.15% between weeks four to eight, a more sustainable increase than the double-digit gains of previous months. Still, the lifting sector outperformed more modest gains of 1.49% and 1.18% for the Dow and FTSE 100, respectively, for the week four to eight period, and was markedly better than the 4.3% fall for the Topix 500.

January was a shaky period for the world's stock markets, with general buoyancy being counteracted by a rise in oil prices that came on the back of political tension over Iran and disruption to the oil supply in Nigeria. While both problems remain, they do not, at present, seem to be getting any worse. This provided the stability for the Dow and FTSE to eek out their moderate gains, with positive annual results and increased mergers and acquisition activity driving the markets up.

In Japan, the stock market rally that drove shares up in the second half of last year now seems to have levelled off, with the recent downward adjustment. But despite the slide in February, the Index is still up 41.21% from its position at the end of week eight, 2005.

These various factors were reflected in the various crane manufacturers' shares. Hitachi and Tadano both saw their equity fall in February, although Kobe Steel bucked the trend with an 11.08% rise.

In the more buoyant US, both Manitowoc and Terex enjoyed double-digit gains, reflecting the market's confidence and the boost given to capital equipment manufacturers in general from recent up-beat results. The Europeans were more mixed, with KCI Konecranes topping the list of gainers thanks to a 14.75% rise, while Palfinger experienced just a 2.86% increase.

Currencies

February saw the Dollar continue on its path of gentle improvements against the other major currencies. Although there was a slight slip against the Yen, it put on 1.74% against the Euro and 1.2% against the Pound. The trend is clearer from a long-term analysis – the Dollar is up 11.47% against the Yen, 10.78% against the Euro and 8.81% against the Pound in the 12 months since late February 2005.

But where currencies go over the next 12 months is a complex question. The new Federal Reserve chairman, Ben Bernanke, seems to be picking up where Alan Greenspan left off, with sustained 0.25% interest rate rises, and that would certainly drive the Dollar up further in the short term.

However, US interest rate rises cannot go on for ever, and what happens with rates in other parts of the world could undo some of the recent growth. The Japanese economy was unexpectedly strong in the second half of last year. At this stage, talk of interest rate rises from the bank of Japan would be premature, as the country is not yet out of its deflationary spiral. An increase in the cost of borrowing, however, is at least on the horizon, rather than completely out of the question.

Euro-zone rates are now edging up, but it seems unlikely that the European Central Bank will be as bullish as the Fed. Meanwhile, an interest rate cut seems more likely in the UK, with economic growth looking weak due to the stagnant housing market, and inflation on, or under-target.

So, overall, the Dollar is likely to continue to strengthen for the next few months, but that trend could change later in the year.

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