Turning to the
US economy, this week saw a mixed bag of
statistics released, with it tilting towards the
negative. New home sales in December climbed by
2.9%, but the sale of existing ones fell by 5.7%
to the lowest number in nearly two years. US
durable goods orders for December rose by 1.3%;
whilst Q4 2005 US GDP fell to an annualized rate
of 1.1%, half the rate of consensus
expectations. Compounding the growth fears was
the latest index of leading economic indications
which rose by a mere 0.1% in December, which
suggests a slow pace of economic growth in 2006.
Investors shrugged off the economic data,
preferring to focus on good quarterly figures
from the likes of Caterpillar, Procter & Gamble
and Microsoft. Over the week the Dow was higher
by 2¼%, the S&P 500 by 1.18%, whilst the tech
heavy Nasdaq rose by 2.5%.
Within Euro land the great and the good gathered
at the Swiss ski resort of Davos for the World
Economic Forum, an independent organization set
up with the aim of “improving the state of the
world”. At a different conference in London on
global financial imbalances, ECB chief
economist, Otmar Issing warned that property
price inflation in parts of the Euro region were
unsustainable. German CPI (preliminary data) for
January fell by 0.5% from December and is at
2.1% year on year and the countries business
confidence rose to its highest level in more
than 5 years.
The UK’s Chancellor, ‘Prudence Brown’, fresh
from fudging his own reporting requirements on
his performance over the economic cycle provoked
growing discontent in parliament and elsewhere,
over his decision to abolish mandatory operating
and financial reviews for listed companies,
reviews intended to provide investors with
valuable new information. Despite disappointing
numbers out of Nokia, the world’s largest mobile
phone handset maker, European bourses rallied to
a 4½ year high in respect of the FTSE Euro first
300 indices, buoyed by takeover activity. The
UK’s FTSE 100 index rose by 2%, whilst the
French CAC and the German Dax jumped by 3.8% and
5.6% respectively.
Out East, China’s economy grew by 9.9% in 2005
taking its GDP at $2.26 trillion. As such it
overtakes the United Kingdom (GDP of $2.02
trillion) to become the 4th largest in the
world. Elsewhere, Japanese inflation, as
evidenced by December CPI, rose by 0.1%, the
first consecutive monthly gain since 1998 and
providing hope that the country is emerging from
its 7 years of deflation. Staying with Japan,
the Nikkei Dow 225 jumped by 4.9% on the week
(3.6% on 1 day) as last weeks ‘live door’ slide
and the markets ‘liquidity concerns’ were
quickly forgotten. The Hang Seng gained a modest
0.6%.
On the currency front, the $US index gained 0.5%
on the week, mainly at the expense of the
Japanese Yen, which eased by 1.7%. US treasuries
suffered their worst decline since October 2005,
as the 5 and 10 year yield jumped by 3% and 3.3%
respectively.
Within the commodities complex, the $ oil price
eased by 1% to $67 a barrel, West Texas light.
The $ gold price rose by 0.9% over the week,
ending it at $559oz. The broader CRB index (a
basket of commodities) closed at another all
time high.
Next week sees the release of US personal
incomes and spending, consumer confidence
numbers out of the US and the Euro zone and the
latest unemployment data from Japan and Europe.
The big events, however, are the first FOMC
meeting of 2006 (and the last under the
chairmanship of Alan Greenspan) and the US
Presidents ‘State of the Union address’. During
the latter, George W is expected to talk up the
‘economic health’ of the country, implicitly
urging the population to keep on spending.
Against this we were interested to note from a
recent survey by A C Nielsen on CNN Money.com
that Americans are among the worlds most
cash-strapped people, where nearly a quarter of
them (22% in fact) have no money left once they
have paid for their essential living expenses.
Whilst the US heads the list of 42 countries on
saving futility, others in the top 10 of cash
strapped are Canada at No 3 (19%); UK at No 4
(17%) and France at No 5 (16%).
“Creditors
have better memories than debtors”
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