Week ending 20th January 2006      

The all important US economy had a few ‘not so good’ statistics to digest this week, including the revision lower of Q4 2005 GDP, which annualized at 2.7%, the slowest pace in 3 years, as consumer spending was at its weakest since 1991. US housing starts fell by 9% in December, with building permits down by 4.4%. On housing, we were interested to note that 40%+ of first time buyers opted for 100% loans or higher last year, according to the National Association of Realtors. The latest inflation number, as evidenced by December CPI, fell by 0.1%, a second consecutive month of decline. There was some ‘good news’ in that consumer sentiment improved in December, the 3rd consecutive month of gain. It was volatile for stocks as the first of the Q4 2005 announcements were released. Mega Cap stocks, such as Citigroup and General Electric, disappointed analysts and investors alike, particularly the latter, which announced a 46% decline in profits. The tech sector faired no better, with Motorola and Synaptic adding to the gloom. Even super stock ‘Google’, took an 8% haircut, as the companies spat with the US government over ‘information disclosure by its users’ gathered pace. Over the week the Dow fell by 2.7%, whilst the S&P 500 and the Nasdaq were lower by 2% and 3% respectively.

Turning to Euro land, the central bank of Sweden announced an increase in the countries interest rates to 1.75%, up by 0.25%, whilst Spain’s central government appears to be close to granting its problem area of Catalonia, greater independence. Turning to the United Kingdom, house prices rose by 2.5% in November 2005, according to the Nationwide, also stating in its latest survey that the average home price at £186,400 is now at 7.3 times the countries average salary. Unbelievable!

Across the main bourses, oil stocks performed well, on the latest up tick on crude oil prices. But it was insufficient to ignore the trend of Wall Street, as the FTSE 100 index eased by 0.7%, which outperformed the French CAC and the German Dax, which fell by 1.6% and 2.5% respectively.

Out East, the big news was the complete shut-down of the Tokyo stock exchange, the world’s second largest. A stampede of sell orders caused the exchange to cease up (become illiquid!). This marked the first time in the exchanges 46 year history that it has been forced to close. Japan’s main stock index, the Nikkei Dow 225, fell by 8.7% in just four days, leading up to the 18th January closure day, whilst the TSE Mother’s Index, a broader index, fell by a whopping 24% in two days. The market recovered some of the losses towards the weeks end but over the week the Nikkei lost 4.6%, whilst the Hang Seng was lower by 0.8%.

The $US index was little changed on the week and considering the equity backdrop, the treasury market was unimpressive, as the 5 and 10 year yield rose by 0.4% and 0.25% respectively.

Within the commodities complex, the $ oil price jumped by 4.6% to $76.4 a barrel, whilst the $ gold price eased by just $3, or 0.5% to $554oz. The latter’s return, however, disguises a volatile week for this asset class also, as the range of price movement was at 5% in just one week.

Next week sees the latest economic leading indicators index out of the US, together with durable goods orders and personal incomes and spending data, whilst Euro zone and Japan release their latest inflation figures. From the UK, we get to see the latest GDP number, consumer credit data and the latest mortgage lending figures.

“Almost anything is possible, but remember the almost”

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