Week ending 14th April 2006      

The US economy enjoyed some good news, in respect that the trade deficit narrowed sharply in February, to $65.7 billion, a 4.1% fall from January’s record $68.6 billion. Not so good news in respect of the US budget deficit though, which came in at a record $85.47 billion in March, as Federal spending was up by 13.7% from March 2005 at $250 billion. The latest retail sales and consumer confidence data was higher. It was a mixed week for equities, despite good results from both Alcoa and AMD, undermined by the aforementioned Middle East tension and higher bond yields. Over the week, the Dow rose by 0.2%, the S&P 500 index fell by 0.5% as did the Nasdaq Composite.

The ECB cut its Euro zone growth forecast to 2.4% from a previous 2.8%, as the Bank of France raised its own Q12005 GDP expectation to 2.8% annualised. Staying with France, March CPI eased to 1.7% annualised from 2% in February and President Chirac bowed to pressure and abandoned the recently introduced youth labour law. The number of Britons claiming unemployment benefit rose in March to the highest level in almost 3 years and we were interested to note from a recent Office of National Statistics report that more than half of all jobs created in the past year have been filled by people above the state pension age. The main European bourses followed the uncertainty of the US with the FTSE 100 index unchanged over the week, whilst the French CAC 40 and the German Dax were lower by 1.5% and 0.6% respectively.

Out East, China’s March trade surplus was at $11.2 billion, the second largest ever and way above forecasts. Exports are up 28.3% year on year. Elsewhere, Japan’s trade surplus rose by 6.2% in February, whilst March bank lending has improved. Over the week Japan’s Nikkei fell by 1.9%, whilst the Hang Seng index eased by 0.3%.

On the currency front, the $US index remained level; the Iceland Krona fell by 4% and the $ New Zealand jumped by 1.7%. US Treasury bond yields marched ever higher (as did mortgage rates), with the 10 year exceeding the 5% level for the first time since June 2002. Over the week the 5 and 10 year yield moved higher by 2.6% and 2.9% respectively.

The commodities complex moved ever higher also, with the $ oil price higher by 2.9% and knocking on the door of $70 a barrel, whilst the $ gold price jumped by a further 1.5%, ending the week at $599.50oz at the Asia close on Friday, Comex being closed for the holiday.

Next week sees the latest inflation number out of the US the UK and the wider Euro zone and more evidence in respect of the US and UK housing market trends. Japan releases its latest leading economic index and trade data. Finally, President Hu of China arrives in the US for dinner with Bill Gates and ….. His state visit to the US including meetings with George W.

“Tackle a job with impatience and it will take twice as long”

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