Week ending 6th January 2006      

Moving on to the financial markets, Wall Street kicked off the year with 4 consecutive days of gains as the release of the December Fed minutes inferred that, “the number of additional increases (in interest rates) to control inflation, probably would not be large.” Despite disappointing data on manufacturing, a 108,000 jobs growth number for December versus the 205,000 expected and very disappointing numbers out of mega retailer Wal-Mart, stocks flew. The Dow gained 2.3% over the week, outperformed by the S&P 500 index which jumped by 3%. The semi-conductor sector surged by 7.7%, hauling the Nasdaq higher by 4.6%.

Euro land thankfully saw a quick end to the Russian-Ukraine ‘spat’ over gas supplies. Germany, Europe’s largest economy receives about 30% of its gas supplies through Ukraine. Austria launched its six month presidency of the European Union with a brief to bring the moribund EU constitution out of the deep freeze and to rebuild public confidence in the Union. Elsewhere, Britain’s £6 trillion property market received a boost as home loan approvals reached their highest level in 18 months towards the end of 2005, according to the Bank of England. Like their US counterparts, tech stocks led the main bourses higher. The FTSE 100 rose by 2% whilst the French CAC and the German Dax finished the week higher by 3.2% and 2.4% respectively.

Out East, New Zealand’s trade deficit hit a record high in December, whilst Australia’s retail sales unexpectedly declined in November, adding to speculation that Asia’s 5th largest economy is slowing. China is now the world’s 4th largest economy, with a revised GDP of $2.16 trillion versus Britain’s $2.13 trillion. The country has set world records in fixed asset investments, which expanded by 29% year on year to November 2005. The trouble is, according to China’s National Development Commission, China is on the verge of extreme over capacity and its economy is heading for a drastic slow down during the first part of 2006. Asian stocks, like their Western counterparts, chose to ignore this as Japan’s Nikkei hit a 5 year high, up by 2% on the week, whilst the Hang Seng jumped by 3.2%.

After its 13% gain during 2005, the New Year has brought in a change of fortune for the $US, as the $US index fell by 2.6% during the first trading week of this year. The blame has been aimed at China as it indicated its intention to ‘optimise’ its $770 billion foreign exchange reserves, diversifying out of the Greenback. On the upside, the South African Rand jumped by 4.2% as the gold price continued its run of late. The aforementioned ‘reassuring December Fed minutes’ supported US Treasury Bonds, as the 5 and 10 year yields fell by 0.8% and 0.4% respectively, despite the New Year announcement by US Treasury secretary, John Snow, that the government is likely to reach its debt limit of $8.18 trillion by mid February of this year.

The commodities complex commenced 2006 where it left off in 2005, higher. $ crude oil jumped by 4.4% over the week to $62.9 a barrel, the price of copper reached an all time high and within the precious metals complex, $ gold soared by $23oz or 4.3% to $540oz.

So there we have it, the ‘Santa Clause’ rally came late this time. Next week sees the latest US trade balance, PPI data and mortgage applications, whilst Euro land releases its latest GDP data as the UK’s Bank of England MPC decide on any interest rate change.

"Winning may not be everything, but losing has little to recommend it"

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