Starting with the US, St. Louis Fed
President, William Poole, told reporters that core inflation is above
his ‘comfort zone’ and if persistent the Fed “will simply have to pursue
tightening measures.” May durable goods orders fell by 0.3%, the second
consecutive month of falls and contrary to analyst expectations for a
0.5% rise. At 1.96m annualised units, May housing starts were stronger
than expected, albeit that the number was 3.8% lower than May ’05.
Meanwhile, the Freddie Mac 30 year fixed mortgage rate jumped by 8 basis
points to 6.71%, the highest level since June 2002 and up by 114 basis
points from a year ago. The major US stock indices eased with the Dow
lower by 0.2%, the S&P 500 by 0.6% and the Nasdaq down by 0.4%.
Turning to Euro land ,ECB President, Jean-Claude Trichet continued with
his hawkish tone of late by stating that “Inflation risks remain
elevated” and that “we’ll continue to do all that’s necessary to contain
inflationary risks.” Meanwhile, German Producer Prices for May
accelerated at their fastest pace in 24 years and Sweden’s Central Bank
raised its bench mark interest rate by ¼% to 2¼%. Despite all this talk
(and action) about higher Global interest rates, UK mortgage lending
rose to the highest level in 2 years during May, according to the
British Bankers’ Association. A recent survey suggests that 50% of all
first time house buyers are given or loaned cash by their parents to
help with the deposit. Many parents use their investment and savings to
help whilst a growing number who do not have any cash to give to their
children, re-mortgage their own home to release money and stand as a
guarantor for the child’s mortgage. There appears to be little concern
however from the Monetary Policy Committee at the Bank of England as the
minutes from its last rate-setting meeting showed a 7 to 1 vote to keep
the benchmark rate unchanged. Staying with the UK, its National flag
carrier, British Airways, saw its share price marked lower by 6% as it
was revealed that the airline was at the centre of a price fixing probe.
It was a better week for the main European equity indices, as the UK
FTSE 100 gained 1.7% whilst the French CAC 40 and the German Dax jumped
by 2.6% and 2.9% respectively.
Out East, Bank of Japan Governor, Fukui, said that the central bank
needs to adjust interest rates without delay (after years of the zero
interest rate policy) placing a rate hike on the agenda for July.
Meanwhile, Japan’s trade surplus rose for the first time in 17 months,
according to the Ministry of Finance, by widening by 35% to $3.4bn in
May from a year earlier. China’s Central Bank said that it will “further
cut excessive loan growth” by raising its required reserve ratio by 0.5%
to 8%, thereby leaving commercial banks with less to lend. Hong Kong’s
unemployment rate fell to 4.9% in May, a 5 year low, from April’s 5.1%
and South Korea’s financial watchdog has ordered domestic banks to cut
monthly mortgage lending by half. Japan’s Nikkei Dow 225 gained 1.6%
over the week as the Hang Seng eased by 0.2%.
The $US index ended the week higher by 1.1% whilst the South African
Rand and the Turkish Lira were both smacked by 7%+. US Treasuries showed
their concerns for the Global credit squeeze as the 5 and 10 year yield
jumped by a further 2% over the week. Year to date these benchmark
yields are now higher by 19.6% and 19% respectively.
Within the commodities complex, the $Oil price was higher by 1% at $71 a
barrel, despite the latest crude inventory report from the US Energy
Information Administrators, whilst showed stocks at an 8 year high. The
$Gold price gained 0.6% over the week, ending it at $584 oz.
The ‘big event’ of next week, of course, is the FOMC meeting on US
interest rate policy. The Fed funds futures is pricing in a further ¼%
rate hike, the 17th successive rise but a small percentage of
commentators are suggesting a ½% hike. We will soon find out.
We also get to see the final Q1 2006 GDP number and personal consumption
figures out of the US. The Euro Zone releases the latest consumer
confidence data and money supply numbers, as does the UK. Meanwhile,
Japan’s latest inflation data is released.
It was 40 years ago this week that English football fans were
celebrating the winning of the World Cup and Britain saw the appearance
of its first ever credit card, Barclaycard. We’ll let you do the maths
on the ‘rate of inflation’ since that date but it appears to be some
what perverse that Central Bankers are only now expressing concerns over
inflationary trends when one observes that a Ford Motor Car cost £485 in
1966, the average weekly wage of a factory worker was £17 and a pint of
beer cost just 10p a pint. As for the salaries of footballers’, no
comment!
“We
must live not as we like but as we can”
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