Week ending 28th July 2006      

It was a very busy week for US economic data and for Q206 company earnings. Starting with the former, the much watched housing area saw June existing house sales fall by 1.3% and average prices attained higher by 0.9% but with ever increasing inventory. Staying with housing, we note that foreclosure filings in Massachusetts soared by 65% during Q206, after Q1’s 30% rise. The Fed beige book showed that 6 of the 10 districts covered are slowing, confirmed later in the wee as the advance Q206 GDP number came in at 2.5% versus the expected 3.2% and at less than half of Q106’s 5.6% growth rate. General Motors announced a second quarter loss of $3.2Bn and saw its share price jump by 11%, mainly on a rosy forecast going forward! UPS, meanwhile lost 11% after disappointing results. The stock price of Amazon.com, the World’s largest online retailer, plummeted to a 5 year low after the company announced a 58% fall in Q2 profits. It was, however a very good week for the main averages, as punters’ read into the slowing GDP figure a near peak in US interest rates. The Dow and the S&P 500 advanced by 3.2% and 3.1% respectively, whilst the Nasdaq gained 3.7%.

Europe’s largest economy, Germany, saw consumer confidence in July rise to a 5 year high after the recent fall within business confidence, whilst French business confidence also rose to a 5 year high. Interesting when one notes that Europe’s 2nd largest auto manufacturer, France’s Peugeot gave its 3rd profits warning in a year, whilst German auto groups, DaimlerChrysler and Volkswagen, both announced excellent results. In the UK analysts were more concerned about Lord Brown’s retirement date from Oil giant BP, which he confirmed will be in 2008. As with their US counterparts, European stocks rose strongly, with the FTSE 100 index up by 4.5%, whilst the French CAC and the German DAX gained 4.4% and 4.7% respectively.

Out East, Japan announced a 1% rise in its CPI for June and at its fastest pace in 8 years. Retail sales in China eased in June to a still very respectable 13.9% year on year according the National Bureau of Statistics. Elsewhere South Korea’s economy grew at its slowest pace in more than a year and India’s Central Bank raised interest rates by ¼% to 6%, a 4 year high. The Nikkei gained 3.5% over the week, whilst the Hang Seng was 3% higher.

The evidence of a US slowdown backed hopes of a “rates pause”, hence major Sovereign debt yields’ fell, with the exception of JGB’s. US 5 & 10 year bond yields fell by 1.5% and 1.1% respectively and the $US index eased by 0.6%.

Within the commodities complex, the $Oil price fell by 1.6% to $73 a barrel, with the $Gold price higher by 1.9% at $634oz.

Next week sees the latest employment data for the US and the Euro-zone. Construction orders and housing starts for June are released in Japan, whilst the ECB, the Bank of England and the Australian reserve bank all hold meetings to decide on interest rates.

Sentiment is a wonderful thing, particularly when it relates to matters financial. When a stock’s earnings come in lower than expectations, the stock’s price is usually hammered. Yet when the entire US economy fails to meet its expectations, the whole market rises!

“Where all think alike, no one thinks very much”

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