Still On A High

19 March 2008

Having hit historic highs in late May, share prices around the world retreated a little in June, but generally held onto their gains. The Dow slipped 1.8% between weeks 22 and 26, while the UK benchmark FTSE 100 Index fell 1.27%. IC 's share index of crane manufacturers dropped 1.28% in a similar move. It finished week 26 at 654.13 points, having hit a record high of 666.76 points the previous week.

In contrast, the Nikkei 225 gained a marginal 0.92% over the month of June. But overall it was a quiet four weeks for the markets, with no distinct upward or downward movement.

Crane shares

As with the headline IC share indexes, there were no major moves in share price for the constituent companies.

The US manufacturers, for example, fell a little from their recent historic highs, but still look extremely strong over the longer term. Manitowoc's share price has almost doubled compared to a year ago, and Terex is also looking strong with a 67.24% gain in the last 12 months.

The story is similar for the other manufacturers in the Index, with annual gains ranging from 125% for KCI Konecranes to 30% for Kobe Steel. Even though Kobe Steel is a relative laggard in the sector, its performance is still head and shoulders above any of the mainstream indexes, the best of which is the Dow, up nearly 20% compared to last summer.

As one would expect from all this, the Crane sector is still outperforming the wider markets by a huge margin. IC's Share Index is up more than 60% on its position in mid-2006. It is also up 32% in the year to date, compared to 7.5% for the Dow - the best performing of the mainstream indexes.


Although it continues to gain against the Yen, the US Dollar is coming under increasing pressure. A climate of rising interest rates in Europe against now flat rates in the US has pushed it to a 26-year low against the UK Pound, and it is also losing ground to the Euro.

This situation seems likely to get worse as the year moves on. UK interest rates are currently at 5.75%, and are expected to hit 6% before the end of the year. In The Euro Zone the European Central Bank currently has its headline rate set at 4%. However, this is also expected to be hiked in the coming months as economic growth in major economies like Germany threatens to drive inflation up. In contrast, the current US interest rate of 5.25% is expected to remain unchanged for the foreseeable future.

This is good news for US and Japanese export-orientated companies targeting Europe, as it makes their products cheaper or more profitable in local currency terms. However, European manufacturers will find life increasingly difficult, particularly when one considers how many parts of the world peg their currencies to the Dollar - most notably countries in Latin America and the Middle East.


Recent years have shown the markets to be sensitive to interest rate changes, particularly in the US. So far this year, however, European shares do not seem to have suffered from the increased cost of borrowing in the region.

There is a question of whether the markets are due a downward correction like those that were seen in February and last May, but for the moment there is a sense of buoyancy.

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