Stock markets finished last week strongly pushing indices both here and in the US to the top of their recent trading ranges.

This is against a backdrop of improving economic data and as noted last week, the avoidance on both sides of the Atlantic of a recession.

The good economic data has yet to be reflected in company profits, hence we have a recovery under way with continuing company difficulties.

This is perhaps not surprising as markets anticipate better times ahead for companies.

There is also an element of what is often termed "kitchen sinking", whereby companies have been using the recent difficult market conditions to clear out the cupboard of bad news.

This has the effect of making matters appear worse at present while paving the way for profit recovery further down the line.

The market has had to contend with a 40 per cent cut in the dividend at CGNU that in turn has cast doubt on the distribution policy of other companies. HBOS also appears to be raising £1.4bn of new money without any strong explanation, satisfying the market's ability to absorb new equity for the time being.

The UK market has now moved to within a whisker of its year high at 5300. While the mood is now certainly brighter, improving company profits are required to push the market beyond its next key recovery point of 5400.

John Pearson - divisional director

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