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Market barometer: Big economic and share downturn is shaping up to happen next year

Friday 19th May 2000

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For an interest-rate-raising week, sharemarkets have looked fairly calm. Low US unemployment figures have been backed by high April retail sales.

US 15- and 30-year mortgages are at new highs but consumer confidence is running strongly. The US Federal Reserve may want to let more air out of the stock market yet if that will temper consumer optimism.

It should not be overlooked that this is a US presidential election year. Usually presidents pump up the US economy as the election nears to boost the chances of themselves or their favoured successors.

Bill Clinton cannot run again but would want his vice-president, Al Gore, in the White House rather than republican George W Bush, especially as he might need a full presidential pardon once he loses his legal immunity on leaving office.

Accordingly US government spending can be expected to be strong at least until either "Bore or Gush," as the Economist dubbed them, is sworn in. On that basis, the big economic and stockmarket downturn would be timed for 2001.

Main US indices look pretty flat around mid-range support levels. The Dow Jones industrial index is still stuck at about 10,500 on average, although the Dow Jones transportation index has lifted toward a target of 3000.

The Standard & Poor's 500 and the NYSE composite are averaging around 1400 and 640 respectively. The Nasdaq composite index (illustrated) seems to be stabilising at the 3500 level.

London's FTSE-100 is still marking time around 6200, while Australia's all-ordinaries index has slipped to 3000, possibly on foreign selloff of Australian shares due to an Australian dollar weakness.

Trends in local indices are split.

The NZSE top-40 capital index has rebounded toward resistance at 2050. The smaller companies capital index looks pretty awful, having slumped under recent support at 5000 and with 4500 below as the next marked area of previous support.

The continued collapse of the kiwi dollar could drive out more foreign investment in the sharemarket.

On a US dollar basis, New Zealand total household wealth has crashed much more than the first-quarter 2000 decline of $NZ600 million calculated in the latest published WestpacTrust household savings survey. Telecom's decision to lower its standard dividend payout percentage from 90% of post-tax profit will further erode the NZSE's biggest listing's status as an income stock.

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