Meanwhile, the World’s Capital markets
are signalling worrying times for the economy as the ‘Global Squeeze’ is
on. No less than 7 Central Banks have raised their official interest
rate this week.
Turning to the all important US economy, the week’s data included the
latest trade data. After falling for 2 months, the trade deficit rose in
April by 2.5% to $63.4 billion. Mortgage applications continued to fall
last week, whilst May import prices rose by 1.6%, 8.3% for the past 12
months. For stocks, it was a bad week for semi conductors, whose index
fell by 6.4%. Worse still was the S&P Homebuilders Index which dropped
by 7.4%, its worst weekly fall since last November. The index is now 40%
lower than a year ago. The venerable Dow Jones Industrial Index fell by
3.2% over the week, falling below the 11,000 level for the first time
since March of this year. The S&P 500 and the Nasdaq Composite indices
fell by 2.8% and 3.8% respectively.
Euroland saw an increase in interest rates as the ECB added ¼% to its
main financing rate to 2.75% albeit that the Bank of England’s MPC left
its rate on hold at 4.5%. The ECB also cut its forecast for 2007 growth
from 2% to 1.8%, whilst upping its inflation forecast to 2.3% for 2008.
European stocks fell to their lowest levels in 6 months, with the UK’s
FTSE 100 index lower by 1.9% over the week, as the French CAC 40 and the
German Dax indices free- falled by 3.9% each.
Out East, Japanese machinery orders rose by 10.8% a further sign of
growing business confidence whilst Australia’s official unemployment
rate fell to a 30 year low at 4.9%. On the flip side Thailand’s consumer
confidence fell in May to its lowest level in four years and China’s
money supply (true inflation) accelerated in May, and is now 19.5%
higher than a year ago. Japan’s Nikkei fell by a thumping 6.6% over the
week as the Hang Seng was lower by 1.8%.
The Greenback benefited from the Global Stock sell off as US Hedge Funds
de-leveraged part of their International exposure and repatriated the
cash back into Dollars. The $US Index gained 2% over the week.
Government Bonds were steady with the 10 year US Treasury yield lower by
0.3% to 4.98%. However, the US yield curve has once again inverted, as
it did in December 2005 and between February and March of this year. An
inverted yield curve has historically forecast a slowing economy and
recession.
The commodities complex joined in the sell off, as the $Oil price eased
by 1% to $71.6 a barrel. The price of Copper fell by 10% whilst the
Precious Metals took another hit with the $Gold price lower by 5.7% to
$608 oz and Silver dropping by 8.4%.
Next weeks economic data releases includes May PPI and CPI for the US,
UK and the Eurozone with trade data and consumer confidence readings out
of Japan.
The European Central Bank is the latest institution to warn on the
‘major risk to Global financial stability’ being the Hedge Fund
community or more to the point the leverage employed within it, by
placing an ‘idiosyncratic collapse of any single hedge fund or a cluster
of smaller funds’ in the same category as a bird flu pandemic. With a
recent Bank of International Settlements report stating that there is
$285 TRILLION of over the counter derivatives at large, we can see their
point.
“An
investment in knowledge always pays the best
interest”
[ Back ] [ Up ] [ Next ]
