Equities
FTSE, DAX and Nikkei Our preference for the FTSE, the DAX and the Nikkei over G7 bond markets has worked well over the past month, and should continue to do so. However, readers will know that we have liked these three stock markets for quite a while now. In fact, since we first promoted the FTSE earlier this year, the index has gained a cool 700 points.
And we see little reason to alter our bullish view of these bourses. Additional short-term help is likely from the US markets, which closed strongly at the end of last week. Indeed, good support now exists for the Dow in the 10,300-10,400 area, and any push through the key 10,720 mark would signal further gains towards the year’s high above 10,900. That aside, we still favour the European and Japanese indices.
As for the FTSE, we see additional gains towards the 5,700 region by year-end or Q106. Key support levels to watch are 5,430, with major support existing at 5,370. However, we would only become concerned about the medium-term strength of the FTSE were it to close below 5,280.
The DAX is holding above 5,000, and again the medium-term outlook is very encouraging, with key support in 4,800 region. As we said recently, the German bourse continues to benefit from low interest rates, a weaker euro, strong money supply growth, and a gradual reform initiative amongst German industrials.
We must sound like a stuck record with regards to the Nikkei, having promoted the index for so long now, as well our 15,000-16,000 upside target. In fact, we first showed interested in the index in the low 11,000s, becoming really excited on the break above 12,100. Currently trading above 13,500, the market does look a little over-stretched. However, we see good support in the 13,000 area, and maintain our bullish medium-term outlook. In any case, any correction is likely to meet with excellent buying interest.
Key risks to watch out for are Koizumi moving a little too fast on his plans to address the budget deficit, and the Bank of Japan tightening monetary policy too early. Both are unlikely, but could potentially derail the recovery if they become reality.
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