FTSE faces strong headwinds

Along with other world markets, the FTSE 100 has recovered rapidly from its 7% slide in early March to reach levels close to its 1999 high. But can the recovery last?

Was that it? Along with other world markets, the FTSE 100 has recovered rapidly from its 7% slide in early March. Goldman Sachs and HSBC expect it to climb beyond 6,830 by the end of the year, not far short of 1999's record high of 6,950. You can see why that could happen, says Tom Stevenson in The Daily Telegraph. The market has gone "bid-crazy. Takeovers rumoured, actual and just plain made-up dominate the financial headlines". Scottish & Newcastle jumped by 15% a fortnight ago on rumours of a possible takeover.

Private equity's access to cheap credit is a key driver of the mergers and acquisitions (M&A) boom, while the market is also drawing support from strong corporate balance sheets, which are facilitating share buybacks, special dividends and healthy dividend increases, as Chris Brown-Humes points out in the FT. "But then there are a number of negatives," he says. The key worry is the weakening US economy as the housing bubble deflates. With a recession in the US now looking more likely, "any piece of bad news can cause jitters", says FT Deutschland.

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