Week ending 19th May 2006      

Economic data for the US was mixed this week, as the all important capital flows into the country fell to $69.8bn in March vs $90.5bn in February. The latest leading economic indicator index fell by 0.1%, detrimentally affected by lower building permits and core capital equipment orders. The main upset came from the latest inflation data, as the April producer prices number soared by 0.9% as the CPI figure came in at a higher than expected 0.6%, now annualising at 5.1%. It was a turbulent week for the financial markets as the mixed data of late painted a confused picture for investors, not helped by central banker’s warning that investors are misreading the risks. The venerable Dow, which incidentally celebrates its 110th birthday on May 26th, having been just 80 points from its 2000 all time high, sank by 500 points or 2%. Meanwhile the S&P 500 index gave up 1.9% as the Nasdaq fell by 2.2%.

Euro land also saw a mixed bag of economic data. French Q106 GDP picked up but 2005 growth was revised lower. The German Zew index fell sharply in May to 50 from April’s 62.7, whilst UK retail sales rose in April by 0.6% or 3% year on year. Staying with the UK, both British Airways and BT announced better than expected results and saw their respective share price rewarded. It was also announced that Warren Buffet, the Sage of Omaha, has put 57 million of Tesco shares into his international shopping trolley. Overall though the main European bourses faired worse than their US counterparts as the FTSE 100 index fell by 4.3%, on par with the French CAC 40 and the German Dax indices which were lower by 4% and 4.1% respectively.

Out East, Japan’s Q12006 GDP came in at 1.9% annualised, better than expected; as wage rises and job prospects improved. Unemployment in Hong Kong fell to the lowest rate in 5 years in April at 5.1% and Singapore’s government raised its 2006 economic growth forecast to 7%. The regions stock indices followed the lead by the West, with Japan’s Nikkei lower by 2.7% over the week and the Hang Seng down by 3.5%. High flying India saw its bull run go in to reverse as the Bombay stock exchange was hit the hardest in the region, collapsing by 11%.

The $US ended its rout of late, adding 1.1% on a trade weighted basis. On the downside for the week were the South African Rand and the Brazilian Real, both falling by 2.9%. After a very volatile week, government bonds benefited on a ‘flight to quality’ basis towards the week-end with the 5 and 10 year US treasury yield higher by 1.2% and 0.5% respectively.

Within the commodities complex, crude oil fell by 5.4% to $69.3 a barrel whilst the $ gold price gave up 7.9% to $658oz. They were not alone for large falls as the copper price sank by 10% and the price of $ silver fell by 13%.

So all ships went down this week, be they stocks, commodities, bond yields and Real Estate (EFT’s).

Next week’s data release for the US includes home sales, Q12006 preliminary GDP and the latest personal incomes and spending. Q106 GDP figures are also out for the UK, together with Q1 Government spending. The March trade balance is released for the wider EU Zone, whilst the latest CPI data is available for Japan.

We started with Real Estate and the boomers’, so we will end with further comment. Just as the ‘Boomers’ have geared up to the asset class, the San Francisco Chronicle reports that the Bay area, perhaps the epicentre of the housing bubble for the US, has experienced the steepest fall in house sales in 5 years in April, down by 25% since a year ago. The same phenomena are apparent within the UK, no doubt aided by recent research on ‘middle income family debt’, compiled by the Consumer Credit Counselling Service. It would appear that households earning £30,000 pa net ($56,000) are increasingly seeking debt advice. The numbers have trebled in the past 3 years. According to other research, compiled by Scottish Widows Bank, British grandparents are in debt to the tune of £47bn. Those in the boomer 55-65 age group are a long way from paying off their mortgages, with 50% of those still in fall time employment having an average mortgage outstanding of £61,850.

“The only person who sticks closer to you in adversity than a friend is a creditor”

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