It is the economy, of course, that
will seal the Republican’s fate in November's mid term elections and by
that the electorate actually mean the stock market. This week saw a
sprinkling of good economic data as the US current account deficit
narrowed to $209bn or 6.4% of GDP during Q1 2006 from the Q4 ’05 record
level of $223bn or 7% of GDP. Consumer confidence in late May/early
June, as measured by the University of Michigan, rose to 82.4 from May’s
79.1 and US retail sales edged higher by 0.1% in May, albeit that May
inflation, as measured by CPI, was higher by 0.4% and over the past 3
months is annualising at 5.7%. Volatility continued within the financial
markets as stocks endured large sell offs over Monday and Tuesday only
to be reversed by the weekend, mainly due to a huge 1 day surge on
Thursday (the Dow rose by 190 points) when stocks had their best day
since October 2003. For the week the Dow enjoyed a 1.1% bounce, the S&P
500 index was level, whilst the Nasdaq Composite eased by a ¼%.
Euro land witnessed a crisis at EADS, the parent company of Airbus,
after the company announced a likely Euro 2 billion hit to profits over
the next 4 years due to delays in delivery of the Airbus A380 super
jumbo. Its stock price collapsed by 25%, not helped by the news that
executors of the company sold shares only weeks ago. Turning to the UK,
an FT article informed that students and graduates have built up £18.7bn
in loans over recent years, which they have to repay by either a
mortgage style repayment or via their Employer (assuming of course that
they gain employment). The ‘Student Loans Company’ goes on to say that
at the end of 2005/06 financial year, the debtors have fallen behind by
£186m. Euro land stocks failed to mount a recovery this week as the FTSE
100 index gave up 1%, whilst the French CAC and German Dax fell by 1.5%
and 1.6% respectively.
Out East, investment into China’s real estate, factories and other fixed
assets accelerated in May, according to Bloomberg. Spending in
residential property development in Beijing rose by 33% during the first
5 months of 2006 versus the same period last year. South Korea’s
unemployment rate fell to a 3 year low in May at 3.4%, whilst
Australia’s consumer confidence fell to an eight month low this month as
record Gas prices and higher interest rates affected household budgets.
Japan’s Nikkei rose by 0.9% over the week and the Hang Seng jumped by
1.4%.
The $US index gained modestly over the week, whilst US Treasury Bonds
fell after a turbulent week’s trading. Both the 5 and the 10 year yield
spiked higher by 3% ending the week at 5.01% and 5.13% respectively. The
yield curve is inverted once more.
It was another roller coaster week within the Commodities complex.
Despite the increased US inflation data, the $Oil price fell by 2%
ending the week at $69 a barrel. Nymex reduced margin requirements for
both Gold and Silver as their price was slammed by 4% and 9%
respectively.
Next week sees the release of the latest US Durable Goods Orders and a
look at housing starts whilst the latest trade balances for the Euro
zone and Japan are announced. The UK releases its May Public finances
and Money Supply.
The creation of an Asian Currency Unit (ACU) has been gathering pace
since the 1997 Asian financial crisis. Over the intervening years,
successive US administrations have been somewhat hostile to it. Last
week, however, the ACU appeared to receive a tentative blessing as a US
official stated “We do not fear an ACU and we don’t see it as a threat
to thr Dollar. It doesn’t bother us at all.” Time will tell.
“When
a man is in love or in debt, someone else has
the advantage”
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