It was a mixed
bag of economic data for the US this week, as
February retail sales fell by 1.3% and the
current account deficit widened to 7% of GDP
during Q42005. US housing starts fell by 7.9% in
February and CPI, the official measure of
inflation, came in at 0.1%, which fueled
speculation that the Fed was nearly at an end in
respect of interest rates hikes. Excellent
results from the likes of Goldman Sachs and
Lehman Bros drove the financial sector higher,
closely followed by house builders as one of the
most interest rate sensitive sectors. The Dow
and the S&P 500 indices ended the week at their
highest level since May 2001, up by 1.8% and 2%
respectively, while the tech rich Nasdaq also
gained 2%.
Turning to Europe, French and UK unions are
threatening a general strike. The former is to
do with a controversial employment law, which is
designed to cut France’s youth unemployment
rate, by making it easier for bosses to fire
them. In the UK, despite the huge increase in
public sector funding since ‘New Labour’ came to
power in 1997, its employees want a larger slice
of the pie. The German economic expectations
indicator, the Zew, fell last month and in the
UK, Premier Blair was under further attack in
respect of ‘sleaze’, this time relating to
‘peerages for loans’ to the Labour coffers. M&A
activity continued to buoy the main bourses,
with the FTSE 100 ahead by 1.6% over the week,
knocking on the door of the 6000 level. The
French CAC 40 and the German Dax were higher by
1.4% and 1.3%.
Out East, it was confirmed that Japan’s economy
grew at a 5.4% annual pace in Q42005, far higher
than most economists expected. China is now the
world’s largest producer of steel, at 385
million tones and almost 4 times more than the
US produces. The country is also moving up the
added-value chain, as evidenced by exports of
technology products such as computers and semi
conductors, which has increased by more than a
third during the first two months of 2006 versus
a year earlier to $36 billion. Japan’s Softbank,
the internet conglomerate, announced its
purchase of Vodafone’s Japanese mobile telecoms
business for £8.9 billion, mostly borrowed from
the banks. The regions two main stock markets,
Japan’s Nikkei and Hong Kong’s Hang Seng rose
over the week by 1.4% and 2.3% respectively.
It was a bad week for the $US, which sank by
2.1%, mainly to the benefit of the Euro, which
rose by 2.4%. Despite a higher US debt ceiling
(more below), treasury bond yields fell, with
the 5 year yield down by 3% and the 10 year by
1.7%.
Within the commodities complex, the $crude oil
price jumped by 3.8% to $63.8 a barrel, despite
the latest data released from the Energy
Information Administration. Aside of reducing
its 2006 oil demand figure, the agency reported
that stocks of oil remain at their highest
levels since May 1999 and that inventories are
10% higher than a year ago. The $ gold price
rose by 2.6% over the week, ending it at $555oz.
Next week sees the UN Security Council meeting,
where the main topic of discussion will be Iran.
Also due on the 20th March is the scheduled
opening of the Iranian Oil Bourse, pricing oil
in Euros, but rumours suggest a postponement.
The US released its latest PPI and Durable Goods
Orders data, whilst the UK gets to see inflation
data and their Chancellors budget report.
On March 16th 2006, the US Senate voted 52-48 to
adopt the House Resolution and increase the debt
ceiling by $781 billion to $8.965 trillion. This
is the 4th debt ceiling increase since George W
became President, 5¼ years ago, with Federal
Government spending growing at twice the rate as
it did under Clinton. To put the figure into
context, the administration under George W has
managed to increase more new debt during his 5
years in office than the entire debt amassed by
the United States through to 1988. Meanwhile,
rookie Fed Chairman, Benanke is set to reassure
investors that low interest rates and bond
yields in the US are a vote of confidence on the
Fed’s inflation fighting credentials.
“A
complacency Born of Ignorance”
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