Week ending 3rd March 2006      

Meanwhile in the US, consumers continued to demonstrate a willingness to spend more than their income, despite the latest consumer confidence index falling. Add in the fact that new and used home sales fell 0.4% in January and were at their slowest pace in twelve months and we have something of a contradiction with the Fed’s inferrment of more interest rate hikes to come due to inflation and growth concerns. Either way, the stock market was volatile in both directions, moving higher on revised Q4 2005 GDP numbers and then hit by a weaker tone out of Intel. Over the week the Dow lost 0.4% and the S&P 500 index eased by 0.2%. The tech rich Nasdaq managed a 0.7% rise.

Turning to Euro land, the ECB, as expected, announced a ¼% rise in interest rates to 2.5%. Jean-Claude Trichet the head of the ECB sent a hawkish tone, also in respect of higher growth and inflation expectations. German retail sales rose in January, whilst in Ireland, mortgage lending rose at a record 28.8% in January, which is nearly as bad as UK home loans, which jumped by 32% in January, year on year. The UK was treated to yet another ‘scandal’ for the Blair cabinet, as Tessa Jowel’s husband (she is the Culture Secretary) was embroiled in a ‘bribes for lying’ allegation relating to the Teflon plated Italian Premier, Sylvio Berlusconi. Despite bid talk surrounding BT Group, Cairn Energy and BAA ,mobile phone giant, Vodafone, upset the market with its third profits warning in the past 4 months, accompanied with a goodwill write down of £23 billion. For the week the FTSE 100 was level, whilst the French CAC 40 and the German Dax fell by 1.7% and 2.6% respectively.

Out East, it appears that the Japanese economy grew at 5½% annualized during Q4 05. The country’s core consumer price index rose by 0.5% in January, slightly higher than expected, which bolsters the Bank of Japan’s stance of moving to end the 5 year period of zero interest rates. Elsewhere, Indonesia’s inflation rate accelerated to 17.9% versus a year ago. Over the week, the Nikkei fell by 2.7% with the Real Estate sector lower by 3.5% on interest rate worries, whilst the Hang Seng eased by 0.3%.

On the currency front, the $US index fell by 1% and US treasury yields continued their march higher. Over the week, the 5 year yield gained 1.3% to 4.7% and the 10 year 2% to 4.68%. Year to date yields are now higher by 8% and 6.6% respectively.

Within the commodities complex, the $ oil price jumped by 4%, ending the week at $63.7 a barrel. For precious metals, the $ gold price was 2% higher at $565oz, but the star of the week was silver, which jumped by 6%, passing the $10oz level for the first time in 22 years.

Next week sees the latest trade and employment data for the US, EU retail sales and UK consumer confidence figures and the latest money supply rate for Japan.

After 213 years as a member’s only partnership, the New York Stock Exchange is going public. In fact next week sees its IPO. The question of the week should be, ‘If the outlook for the US stock market and the economy look so rosy, why would choose now to go public?’

“The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty”

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