Week ending 25th August 2006      

For the all important American economy there were two important pieces of economic data released this week. The July US Durable Goods Orders, which fell by 2.4%, albeit that they are still ahead by 11.1% versus July 2005 and existing US home sales, which fell by 4.1% in July (-11.2% versus a year ago). Californian home sales fell by a staggering 30%. The bears read into this further evidence of a rapidly slowing economy at a time of record debt levels, whilst the bulls see an end to higher interest rates and possibly a reversal to lower ones, thereby stimulating economic growth. Unsettling news on the housing sector and the attendant slowing of consumer spending hurt stocks such as Circuit City and Best Buy, whose stock price fell by 12% and 7% respectively. A higher Oil price, on fears of a storm in the Gulf of Mexico, drove Exxon Mobil stock price to an all time high. Over the week, the main indices fell, with the Dow lower by 0.9%, the S&P 500 down 0.6% and the Nasdaq falling by 1%.

Euro-zone imports from China have overtaken imports from the US, according to data from Eurostat. German investor confidence fell in August to its lowest level in more than 5 years due to rising borrowing costs and higher taxes, says a Bloomberg article and UK Q2 ’06 GDP rose by 0.8% (versus 0.7% in Q1), the fastest pace in 5 years. Staying with the UK, official statistics suggest that the UK population has now surpassed the 60m mark and 5% of it is claiming incapacity benefits. The euro zone banking sector was buoyed by the merger announced of two Italian banks, Banca Intesa and Sanpaolo IMI, however the major bourses preferred to follow the lead of Wall Street as the FTSE 100 index eased by 0.4%, with the French CAC 40 and the German Dax indices lower by 0.5% and 0.1% respectively.

Out East, S. Korea’s vice finance minister forecast that the economy, Asia’s third largest, will expand at a 5% rate this year. Meanwhile, Hong Kong’s economic growth eased during Q2 ’06 and Japanese inflation, as evidenced by the August core CPI number, rose by just 0.2% versus a year earlier, which was less than most forecasters expected. For the week, the Nikkei fell by 1% whilst the Hang Seng ended lower by 2.2%.

On the currency front, the $US index gained 0.4%, whilst within the fallers, the South African Rand fell by a further 2% against the Dollar and has now fallen by 20% since its April 2006 high (30% against the £Sterling). Government Bond yields continued their fall of late, on the slowing economy data, with the 5 and 10 year US Treasury yield lower by 0.5% and 1% respectively.

Within the Commodities complex, the aforementioned ‘storm threat’ drove the $Oil price higher by 0.6% to $73 a barrel. Elsewhere, the $Gold price rose by 1.5% over the week, ending it at $623 oz.

Next week provides Q2 ’06 provision GDP data for the US and the Euro-zone whilst the UK releases money supply data and Japan announces the latest household spending figures.

In a speech at the Fed’s Jackson Hole retreat, Chairman Benanke stated, “The challenge for policy makers is to ensure that the benefits of global economic integration are sufficiently widely shared and that it is well worth making the effort because the benefits of global integration are large.” Laudable that the comment is, Benanke failed to discuss the economic outlook or monetary policy in his remarks, much to the disappointment of avid fed watchers.

“Success seems to be largely a matter of hanging on after others have let go”

[ Back ] [ Up ] [ Next ]