Global stock markets made a positive start to 2007, hitting fresh record peaks on Tuesday, while the euro rose as still solid manufacturing data supported expectations of more euro zone interest rate rises, according to Reuters. On the first day of trade for the year, the MSCI All-Country World Index rose 0.7 percent to a new all-time peak of 370.4 points as markets in Hong Kong and Australia hit record highs. In Europe, the FTSEurofirst 300 Index climbed 1 percent to 1,499 points, its highest intraday level since Feb. 2001. Volumes were light with U.S. stock markets closed to mark the death of former President Gerald Ford and Tokyo markets also closed. Stocks ended a strong 2006 on a high and most strategists see the potential for further gains, supported by still reasonable valuations, earnings growth and a relatively robust global economy. "We think European equity markets will rise again over the course of 2007. Our forecast suggests a total return of 14 percent," said Ian Scott, a strategist at Lehman Brothers. "While we foresee headwinds of declining earnings growth, we believe that favourable valuations of equities relative to other asset classes, and supportive fund flows, will provide scope for further outperformance." Others including Morgan Stanley said macro economic concerns could cause some short-term jitters and recommended investors buy some protection against a correction in the coming months. Early manufacturing data from the euro zone showed growth remained strong, but off its mid-year peak. The RBS/NTC Eurozone Purchasing Managers' Index slipped to a nine-month low of 56.5 in December but the average reading for 2006 of 56.3 was more than five points higher than the average 2005 reading and well above the 50 level that separates growth from contraction. Mark Miller, an economist at HBOS Treasury Services, said an unexpected slowdown in French manufacturing growth accounted for much of the weakness across the euro zone. "Encouragingly, the export component has held up even in the face of a U.S. slowdown," he said. "There's nothing in these surveys that suggests (euro zone interest) rates don't go up in the first quarter of this year, probably in March." EURO STRONG Solid economic data and expectations of further interest rate rises from the European Central Bank underpinned a strong 2006 for the euro which rose some 11 percent against the dollar. The euro began 2007 in a similar vein, rising against the dollar and hitting a record high against the yen at 157.72 yen. "We're starting the year very much the way we left last year, with a high-yield/low-yield story. You've got ECB rate expectations fairly robust and question marks about what the Federal Reserve will do," Mellon Bank head of currency research Ian Gunner said. The euro was 0.6 percent higher on the session at $1.3273, while the dollar was down 0.2 percent at 118.85 yen. Currencies such as the Australian and New Zealand dollar also made strong starts to 2007, benefiting from their interest rate advantages over other currencies especially the yen. The Australian dollar hit nine-year highs above 94.30 yen as the market priced in more risk of a further increase in Australian interest rates.
