Week ending 4th August 2006      

It was a choppy week for the US financial markets as sentiment swayed between “will he, wont he” in respect of Ben Bernanke ahead of the FOMC’s interest rate decision on 8th August. US core consumer inflation for June came in at an 11 year high, not good for a Fed “pause” but a soft jobs report for July, when unemployment rose to 4.8% from June’s 4.6% has many on the street saying that it is a given that rates will remain on hold. Well, we will all know next week, but in the meantime there were 5 in number Central Bank rate hikes this week, by the ECB, the Bank of England and the Reserve Banks’ of Australia, India and South Africa. Amongst US stocks, Starbucks, the World’s largest coffee shop chain, was hit for 9% as the company announced weak sales data and Apple, maker of the iconic Ipod, saw its stock price fall, as the company said that it would have to restate earnings due to uncertainty over prior stock options granted. Elsewhere, energy trading Hedge Fund, Mother Rock LP, is trying to wind down its “assets” after two months of losses totalling 26%. For the week the Dow eased by 0.2%, the S&P 500 inched higher by 0.06%, whilst the Nasdaq lost 0.4%.

Whereas the ECB was expected to raise interest rates by ¼% to 3%, the Bank of England’s 0.25% hike to 5.75% both surprised and unsettled investors’, particularly as it came in the same week that the banking sector announced their results, ALL with substantially higher bad debt provisions, not to mention the release of June’s insolvencies for England and Wales, which jumped by 26%! Meanwhile, UK mortgage approvals rose in June at the fastest pace in five months. There were decent results from the likes of Deutsche Bank, Credit Suisse and ABN Amro, but all saw their share price fall. Over the week, the UK FTSE 100 index was lower by 1.4%, whilst the French CAC 40 and the German DAX were higher by 0.25% and 0.3% respectively.

Out East, Hong Kong property sales fell by 42% in July as higher interest rates started to bite, whilst in Shanghai an apartment has been sold for $US16m, albeit that it was a large apartment at 1000m2. Japanese car maker, Toyota, announced a 16% rise in sales, pushing it to the number two car maker slot in the US, as Ford, Chrysler and GM sales in July slid by 35%, 37% and 19% respectively. For the week the Nikkei advanced by 1%, whilst the Hang Seng fell by 0.4%.

On the currency front, the $US index fell by 1% to a two month low at 84.38 , not helped by the IMF who says that the Dollar is overvalued by between 15% and 35% adjusted for inflation. Either way, the Bank of Italy has acted, announcing that it had exchanged 24% of its reserves from the $US to the £Sterling. US Treasury yields fell over the week, buoyed by the perception that the Fed will pause.

Within the commodities complex, the $Oil price jumped by 2% to $74.7 a barrel, with Natural Gas prices surging by 40% over the past fortnight. The $Gold price gained 2% to $647oz., whilst Silver flew higher by 9%.

Next week sees the US trade balance for June and the latest retail sales figures. We also get to see the latest money supply data out of Japan and the ECB August monthly report. The big news, of course, will be the FOMC decision on US interest rates.

“Find a job that you love, and you’ll never work another day in your life”

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