Week ending 18th August 2006      

The Bulls were on the rampage this week as “benign” US economic data spurred them on in the belief that the Fed is done with rate hikes. The conference board’s US index of leading economic indicators (a forecast of economic activity in the next 3 to 6 months) fell by 0.1% in July to 138.1 versus January’s 139.1. CPI for July inched higher by just 0.1%, but still at 4.1% year on year, with PPI (wholesale prices) at 4.5% year on year in July. At week’s end, the University of Michigan released their US consumer sentiment index for August, which came in at 84.7 versus the 83.6 figure in July. Wal-mart, the world’s largest retailer posted its first profit decline in a decade whilst the Ford Motor Corp announced that it is to slash US car production, in an effort to speed up its turn around and reduce inventory levels. For the week the Dow gained 2.7% and the S&P 2.8%, while the tech rich Nasdaq index jumped by 5.2%.

Europe saw higher interest rates in Iceland (now at 13%) and in Norway to 3%, whilst Germany, Europe’s largest economy, enjoyed its strongest quarter of economic growth in 5 years in Q2 and France saw its best jobs growth in 5 years. UK inflation for July eased to 2.4% from July’s 2.5% albeit that house prices jumped in July by the most in two years, according to the Royal Institute of chartered surveyors. It was a good week for the IT sector in Europe, particularly for telecom stocks, where Alcatel, Ericsson and Nokia were up by 10.4% 9.4% and 7.5% respectively. For the broader markets’, the UK FTSE 100 index was 1.4% higher, whilst the French CAC and the German Dax jumped by 3% and 3.4%

Out East, China raised interest rates for the second time in 4 months to 6.12% as the authorities continued in their efforts to cool down credit growth. The world’s 4th largest economy saw retail sales grow by 13.7% in July. Exports out of India accelerated in July whilst Taiwan’s economic growth cooled in Q206 as higher credit card and energy costs deterred consumption. For the week Japan’s Nikkei gained 3.4% with the Hang Seng higher by 0.5%.

On the currency front, the $US index stabilised after its recent trend lower, whilst the £Sterling index was the worst performer amongst the main currencies this week on concerns of a slowing economy. US Government Bond yields fell once more on the softer economic data. The 5 and 10 year yield fell by 2.6% and 2.7% respectively to end the week at 4.78% and 4.84%

Within the commodities complex, the $Oil price fell by 5% to $72 a barrel and is now 10% lower from the recent high. The $Gold price eased by 2.7% over the week, ending it at $614 oz.

Next week sees the latest US durable goods orders and housing data, whilst the Euro-zone announces its June trade balance and July money supply figures., UK GDP for Q206 is released and August CPI for Japan.

“The mind is a lousy master but a wonderful servant”

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