Week ending 13th January 2006      

There was some good news in respect of the US trade deficit, which shrank by 5.8% in November 05, on record exports of US goods and services. Retail sales for December were higher by 0.7% (0.2 ex autos) but at least they rose. Not so good news was the latest PPI figure, the prices of raw materials and other producers inputs, which jumped by 0.9% in December. Wall Street saw disappointing earnings from Alcoa and DuPont and a lower revenue forecast by Lucent Technology, the telecommunications equipment maker, who cited weaker sales in the US and China. Over the week, the Dow remained level, whilst the S&P 500 index and the Nasdaq gained a modest 0.2% and 0.5% respectively.

Euro land was also hit by Telecom’s, as France Telecom warned that revenues were likely to disappoint and promptly saw its share price slump by 8%. Deutsche Telecom and Telefonica Moviles of Spain saw their share prices marked down in sympathy. UK and Euro zone interest rates were left on hold by their central banks, at 4.5% and 2¼% respectively and the UK November trade gap deteriorated to £6 billion. The UK FTSE 100 index eased by 0.4% whilst the French CAC 40 was lower by 0.3%. Bringing up the rear was the German Dax, which fell by 1%.

Out East there was an interesting development between China and India, the world’s two fastest growing energy consumers, as the respective energy ministers signed an agreement to co-operate in securing crude oil resources overseas. Not a bad idea as India import dependency is at 70% of consumption and is set to rise, while China’s is at 50%. Elsewhere, office vacancies in Tokyo fell last month to the lowest since December 2001, further evidence that the economy is on the turn. Japan’s Nikkei rose by 0.2% over the week, whilst the Hang Seng jumped by 3%.

The foreign exchanges were fairly quiet as the $US remained level over the week on a trade weighted basis. US treasuries meanwhile saw the yield on the 5 and 10 year ease by 0.9% and 0.6% respectively. UK gilts held up well considering the EU warning handed out to Prudence Brown on the budget deficit, which at 3.3% of GDP has breeched the EU limit of 3%.

Within the commodities complex, the crude oil price rose by 2.5% to $64.4 a barrel, no doubt spooked by the Iranian tension, whilst the $ gold price enjoyed another 3.2% bounce, ending the week at $557oz, a level not seen since January 1981.

Next week sees only 4 days of trade for the US, as the country enjoys the Martin Luther King Junior holiday. The main economic data to be released is the latest inflation numbers for the US, UK and Euro zone.

“If all economists were laid end to end, they would not reach a conclusion” George Bernard Shaw

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