Turning to the
all important US economy, the week was a busy
one for data. American jobs growth slowed in
April, but average hourly earnings increased by
3.8% over the past year. US productivity
improved during Q12006 and is running at 3.2%
annualised. It was a heavy week in respect of Q2
corporate earnings, the majority of whom have
exceeded analyst’s expectations, but we would
like to focus on the important housing sector.
Here, Toll Brothers, the largest builder of US
luxury homes, announced that orders fell by 33%
in Q2. Meanwhile the 30 year fixed mortgage rate
rose to a new 4 year high of 6.58%. Mega lender,
Freddie Mac announced that cash from house
re-financings continued during Q12006, despite
these increased rates. 88% of loans re-financed
resulted in new mortgages of at least 5% more
than the original mortgages and at its highest
level since 1990. The main indices, whilst
volatile, rose over the week, with the Dow up by
1.9%, the S&P 500 higher by 1.1% and the Nasdaq
composite trading with a rise of 0.9%.
Euro land interest rates were left on hold. In
the case of the UK, the Bank of England’s MPC
left rates at 4.5%, despite M4, a broad measure
of money supply, running at 12.4% annualised.
The ECB left rates at 2.5%, but hinted at a ¼%
rise at its June meeting. Euro zone unemployment
fell in March, to an official rte of 8.1%, with
growth in both manufacturing and the service
sector accelerating at their fastest pace in 5
years. The Blair government was hammered in the
countries local elections, losing control of
over 200 councils. The Prime Minister
immediately arranged a cabinet re-shuffle,
described by some as a ‘shifting of the deck
chairs on the Titanic”. Staying with the UK, the
mining sector led the markets higher once again,
which included a bumper set of results from
Lonmin, where profits soared by 122% year on
year. Royal Dutch Shell posted a 12% jump in
Q106 earnings and rumoured bid activity around
the Alliance & Leicester and C&W’s broadband
unit, Bulldog, kept ‘investors’ eager. Over the
week, the UK FTSE 100 index rose by 1.1%, whilst
the French CAC 40 and the German Dax were higher
by 1.9% and 1.7% respectively.
Out East, the Oz central bank unexpectedly
raised its benchmark overnight interest rate by
¼% to 5.75%, a 5 year high and Thailand’s
inflation rate rose to 6% year on year.
According to a recent study by Ernst & Young,
China’s non performing loans may be at $900bn,
dwarfing the countries official estimates. The
big 4 state banks, with $358bn of the total
estimate, is at double official estimates.
Elsewhere, Japan’s labour force has risen for
the first time in 8 year, as women and those
aged over 60 are drawn back into the jobs
market. Is that a positive or negative? It was a
shortened trading week in the regions largest
stock markets, Japan and Hong Kong, with the
former enjoying their Golden Week holiday. Not
withstanding, the Nikkei managed a 1.5% rise
over the week, with the Hang Seng higher by
2.1%.
Another week, another fall in the $US index,
this week by 1.2% and the index traded below the
85 level for the first time in a year, before
ending the week at 85.12. Gainers included the
British pound, the OZ dollar and the Brazilian
Real. US Treasury bond yields inched higher once
more, with the 5 and 10 year yields ending the
week at 4.99% and 5.11% respectively.
Commodities continued to fly higher, with the
copper and zinc metal prices at new record
highs. The $US oil price fell by 2.6% ending the
week at $70 a barrel, after the American
Petroleum Institute reported that crude
inventories had surged by 2m barrels and by 4m
barrels for gas, almost double the consensus
expectations. $US gold jumped by 4.6% to $682oz,
as Newmont Mining Corp president, Pierre
Lassonde predicted further price rises over the
next 18 months, citing increased demand from
China and India, whilst production would remain
flat.
Next week sees the latest leading economic
indicator estimates out of the Euro Zone and
Japan and retail sales and trade data from both
the US and the UK. All eyes and ears will of
course, be focused on the 10th May FOMC meeting
on US interest rate policy.
The Dow ended the week just 150 points shy of
its all time high achieved 6½ years ago in
January 2000. That is just one good trading day
away, albeit that an inflation adjusted level of
the January 2000 Dow level would now be at 14000
approximately. America’s best known investment
magician, the sage of Omaha, Warren Buffet, held
his annual junket this week end, at which he
announced that his company, Berkshire Hathaway,
is ready to put to work its $45bn cash pile,
mainly on overseas acquisitions. The Sage,
contrary to being a fore runner, is following
the trend of the American herd over the past
year, pouring money overseas and at 6 year
highs.
“I am
tired of telling people what they’re too lazy to
know”
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