The minutes of the August FOMC
meeting, released this week, revealed that the decision to “keep policy
(interest rates) unchanged at this meeting was a close call.” The
minutes also stated that “additional firming could well be needed.”
Second quarter GDP growth was revised up to 2.9% from the provisional
2.5% figure, slightly lower than the 3.0% economists forecasted.
Consumer confidence fell 7.4 points in August to 99.6, the lowest since
November 2005 but July personal spending rose by 0.8% whilst July core
CPI was higher by just 0.1% or 2.4% year on year, albeit that the
headline rate is at 4.9%. According to the Bureau of Labour statistics
there were 128,000 jobs created in America in August and the
unemployment rate fell back to the 4.7% level.. The latter buoyed the
equity markets, with the Dow ending the week higher by 1.4%, whilst the
S&P 500 and the Nasdaq Composite indices rose by 1.2% and 2.6%
respectively.
The European Central Bank left interest rates on hold, at 3%, but hinted
that another rate rise was fairly imminent. The ECB went on to say “M3
money supply growth decelerated sharply in July to the slowest pace
since January’s 7.7%, but growth in loans to the private sector
accelerated” Economic growth across the Euro-Zone was stronger during
Q206 but retail sales within Germany and Italian business confidence are
faltering. The UK’s obsession with housing was further stoked this week
as the Royal Institution of Chartered Surveyors stated “The cost of
renting property in the U.K. rose the most in at least eight years in
the three months through July, driven in part by immigration from
Eastern Europe,” The main European indices rose, with the UK FTSE 100
higher by 1.2%, the French CAC 1.4% and the German Dax by 1%.
.
Out East, the former Portuguese enclave, Macao, now part of China, saw
its revenues from gambling higher by 13% during H106 and is fast on the
heels of Las Vegas to becoming the World’s largest gambling centre.
Japan’s unemployment rate fell to 4.1% in July whilst retail sales in
Hong Kong jumped by 7.1% in July versus a year ago. The Nikkei gained
1.2% for the week as the Hang Seng leapt by 3.2%.
On the currency front, the $US index lost 0.5% and the Yen fell by 1.1%
whilst the $NZ and $OZ rose by 2.9% and 1.3% respectively. Government
Bond yields within the US, Europe and the UK fell once again as
investors’ banked on the benign scenario of slowing economic growth and
falling inflation, with the 5 and 10 year US Treasury yield lower by
1.9% and 1.6% respectively.
Within the Commodities complex, workers’ at the World’s largest Copper
mine in Chile, accepted a new contract thus ending a 4 week strike and
hopefully the roller coaster for prices. Despite the agreement the price
ended the week 0.7% higher. Elsewhere, the crude oil price fell by 3% to
$69.8 a barrel, despite US inventories at a 5 month low, whilst the
$Gold price rose by 0.7% to $625oz.
Next week, a holiday shortened week for the US, sees the Q206 US house
price index and a peek at the Fed’s beige book, whereas August money
supply and the leading economic indicators index are announced in Japan.
The UK gets to see the August consumer confidence data and a Bank of
England MPC meeting on interest rates, whilst the broader Euro-Zone
release the latest retail sales figures.
If the catalyst for a bullish Wall St this week was the “jobs data” it
is unlikely to last long, if recent comment out of Capital Economics and
Morgan Stanley’s Steven Roach are to be believed. According to the
former, 30% of all jobs created since the recession of 2001 have been
housing sector related. With the rapid slowdown in the housing sector
now evident, Mr Roach is predicting the at least 2% will be slashed off
economic growth in 2007! The stock market forecasts a rise or fall of
economic growth.
“The
mind is a lousy master but a wonderful servant”
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