The UK recession will be much worse than most people yet expect, it’s still somewhat controversial to even say that there will be a recession, which means that stocks aren’t yet pricing it in sufficiently.

However, to take one example, big oil still looks cheap. I’m not convinced that oil prices above $100 a barrel will be sustainable for the rest of this year and next, as economic conditions worsen across the globe (though in the long term, peak oil and rising demand may well mean that we one day look back on $100 a barrel as a bargain).

But the truth is that the oil majors’ shares haven’t really risen with the oil price in the past year or so, as they’ve had their own worries. So at these levels, regardless of what happens to the oil price (within reason), both Shell and BP look cheap. The Chinese certainly think so – The Telegraph reports that Beijing has built up a near-1% stake in BP through a sovereign wealth fund.

While the Chinese haven’t exactly shown stupendous judgement (buying Blackstone just as the private equity bubble burst, for example), I wouldn’t want to bet against them on this one.

Turning to the wider markets…

On Friday, the FTSE 100 closed down 63 points at 5,831. Insurer Friends Provident was the main faller after US group JC Flowers said it will pull its proposed offer unless the group enters talks by the end of this week. For a full market report, see: London market report (http://www.moneyweek.com/file/45345/london-close-small-retreat-on-broad-front.html).

Across the Channel, the Paris CAC-40 lost 31 points to end the day at 4,766. And in Frankfurt, the DAX-30 fell 49 points to 6,554.

On Wall Street, US stocks edged lower as the country’s fourth-largest bank Wachovia said it would raise $7bn in capital and cut its dividend sharply, after losing $350m in its first quarter. The Dow Jones slipped 23 points to end at 12,302. The broader S&P 500 fell 4 points, to 1,328, while the tech-heavy Nasdaq slid 14 points to close at 2,275.

In Asia, Japanese stocks headed higher, with the Nikkei 225 closing 73 points higher at 12,990. Trading houses, which generate a large chunk of their profits from commodities trading, headed higher as oil hit a fresh record.

Crude oil was trading at around $112.04 this morning, after hitting a record of $112.48, while Brent spot was trading at $110.06.
Spot gold was trading at around $934 an ounce this morning. Platinum was also higher, at around $2,012, while silver was trading at $17.98.

Turning to forex, sterling was trading at 1.9711 against the dollar, and at 1.2430 against the euro. The dollar was last trading at 0.6308 against the euro and 100.93 against the Japanese yen.

And this morning, Tesco’s full-year results met City forecasts, with an 11% rise in annual profit for the 52 weeks to February 23rd. Like-for-like sales (excluding petrol) were up 3.5%, and up more than 4% in the first five weeks of the new financial year. Chief executive Terry Leahy acknowledged that the tough economy would have an impact on consumer habits, but told Reuters that Tesco tends to “grow market share in this kind of environment”.

Source: http://www.moneyweek.com/file/45379/the-outlook-for-house-prices-is-the-worst-in-30-years.html