Finance
Essay Preview: Finance
Report this essay
Introduction:
The UK 100 index had a strong performance in year 2006. Through carry out the fundamental analysis and technical, financial analysis, it could identify the cause of the FTSE 100 index movement and indeed the individual stocks within the index.
1.0 UK domestic economic analysis
?First quarter of year:
UK gross domestic product chained volume measure rose by 0.6 per cent in the first quarter of 2006. (National statistics,2006). Bank of England remain interest rate unchanged at 4.5% in the first quarter of the year. (Houseweb 2006) The inflation rate rose by 1.9 per cent in January, the largest upward effect came from transport, fuels and lubricants price changes. The inflation rate rose by 2.0 per cent in February largely caused by the price of the recreational items. The inflation rate rose by 1.8 per cent in March, largely due to the price of food and non-alcoholic beverages cut. (National statistics, 2006) The overall unemployment rate is 5.0 per cent over the first quarter of year. (National statistics, 2006)
?Second quarter of year
UK gross domestic product grew by 0.8 per cent in the second quarter. (Finfacts team, 2006). Bank of English remain the interest rate unchanged at 4.5% (Houseweb 2006). The inflation rate rose by 2.0% in April, 2.2 per cent in May and 2.5 per cent in June. The largest upward effect came from price increase of transport, housing, water, electricity, gas and other fuels. (National statistics, 2006) The unemployment rate is 5.3 per cent, up by 0.3 percentages from the previous quarter. (National statistics, 2006)
?Third quarter of year:
UK gross domestic product grew by 0.7 per cent in the third quarter of year. (National statistics, 2006) The Bank of England rose the interest rate by 0.25 per cent compare with pervious. (Houseweb 2006) The inflation rate rose by 2.4 per cent, down from 2.5 per cent in June. The largest downward effect on the rate came from furniture and household equipment. The inflation rate rose by 2.5 per cent in August caused by the price of the recreational items increased by a greater amount this month. The inflation rate rose by 2.4 per cent in September, the downward effect on the rate came from the operation of personal transport equipment. (National statistics, 2006) The unemployment rate is 5.5 per cent in this quarter. (National statistics, 2006)
?Fourth quarter of year
The UK gross domestic product grew by 0.8 per cent in the fourth quarter of year. (National statistics, 2006) Bank of England raised the interest rate again in this quarter, now is 5 per cent. (Houseweb 2006) The inflation rate rose by 2.4 per cent in October unchanged from September. The inflation rate rose by 2.7 per cent in Novembers and 3.0 per cent in December the largest upward effect on the rate came from transport cost and from air travel (National statistics, 2006) The unemployment rate is 5.5 per cent unchanged from previous quarter. (National statistics, 2006)
2.0 Political analysis:
Political risk could affect the stock market as a whole as well as the individual share performance.
In UK annual Budget on 22 March 2006, the Chancellor announced a range of changes and policies affecting tax allowances, tax credits. All that new policy would affect the porproate profit and revenue in the different manner.
Tobacco and alcohol duty: The cost of a packet of cigarettes rises by 9p from 6.00 pm on 22 March 2006. The duty on a bottle of wine has raised by 4p and on a pint of beer it rise by 1p from midnight 26 March 2006. The increase of tobacco and alcohol duty would affect the companys profit growth within those sectors.
International shopping: A proposal to increase the tax on goods brought into the UK from outside the EU to ?40 from ?45. This new policy would affect the those company who involved in the international trading.
Stampt duty: The threshold at which Stamp Duty is paid on property purchased increased to ?25,000. The increase of the stampt will affect the companys sales in the property sector.(directgov, 2006)
3.0 Market analysis:
This past year has been another good year for returns in financial markets and for investors
?3.1 UK equity market analysis form January to December
January: UK equity market made a positive start to 2006. The FTSE 100 reached its highest intra-day level on 30 January since March 2001 at 5796.1 points.
February: UK equity market rose in Feb as a result of M&A activity as well as record profit from the banking sector. Economic news was also mostly positive. FTSE 100 index reached its highest intra-day level since March 2001,on 27 February at 5893.3 point.
March: UK equity market rose in March with FTSE 100 index breaking through the psychologically important 6000 level for the first time in five years, it reached at 6047.0 point on 27 March.
April: UK equity market hit new highs by the continuing surge in commodity prices. In particular the FTSE 100 index, heavily weighted toward the resources sector, benefited from soaring commodity prices. The FTSE 100 index broke through the 6,100 make and closed at 6132.7 on 21 April.
May: UK equity market had a good start to the month after a major slump in markets followed. The FTSE 100 fell by 3.1% over the month. The sharp downturn was caused by the concern over rising inflation, among others commodity prices would add to the inflation pressure. Other stated that the fears over US Federal Reserve raise interest rate would slow down the global economic growth.
June: After the last months turbulence the UK equity market remained further nervous and volatiles. Investor were concerned about rising inflation numbers which would lead to increase in interest rate in spite of the signs that US economy is slowing down. The FTSE All-Share index return 4.2% in the first half of the year while finishing the second quarter with a loss of -2.6% driven by the May market turbulence.
July: Despite heightened geopolitical concerns, record oil prices touching new highs and uncertainly about interest rate, the UK economy has started to slow some sighs of recovery. The FTSE 100 index returned 1.6% over the month.
August: The UK equity market showed a decent growth in August despite interest