Americans returned to work after the
extended Labour Day week-end to more evidence of a slowing economy. The
Fed’s ‘beige book’ in August was characterised by describing the economy
as weak. According to David Rosenberg, Merrill Lynchs' Chief Economist,
the word ‘weak’ was used 50 times, up from 40 in July and just under the
53 times in January 2001, prior to the last recession. On housing, the
office of Federal Housing Enterprise Oversight (OFHEO) confirmed that
house price inflation is slowing down. Q206 prices were 1.2% higher
versus the 3% achieved during Q3 and 4 of 2005. Staying with the housing
sector, Lennar was the latest company to cut its earnings estimate,
whilst the National Association of Realtors reduced its forecast for
2006 new home sales, projecting a drop of 16.1% to 1.08 million. They
also expect home price appreciation to fall towards 2.8% from the
previous double digit gains. In a week of light trading volume, the Dow
fell by 0.6%, whilst the S&P 500 and the Nasdaq Composite were lower by
0.9% and 1.3% respectively.
Turning to Euro land, the regions number two economy, the UK, appeared
to be fixated on the speculation on just when Premier Blair will go. By
week end, poodle Tony confirmed that he would step down within the next
year. Of more interest, was that UK home buyers paid £1 billion in
property tax (stamp duty) during Q206, according to land registry
figures, 30% higher than in Q106. The Bank of England MPC left interest
rates on hold at 4.75%, whilst the European Commission said that growth
across the dozen Euro nations, valued at $10 trillion, will expand at
2.5% in 2006, the fastest pace since 2000. Irish tax revenues climbed at
a 13% annualised rate in Q206, twice as fast as the government predicted
earlier this year, buoyed by sales taxes and property transactions,
itself generated by the 21% Q2 increase in Irish mortgage lending. The
UK FTSE 100 index fell by 1.2% over the week, whilst the French CAC 40
and the German Dax indices were down by 2.1% and 1.4%.
Out East, the Bank of Japan left interest rates at the ¼% level as
Japanese bank lending rose for a 7th consecutive month. The Asian
Development Bank raised its 2006 growth forecast for Asia excluding
Japan for the second time this year, citing the strong performances of
China and India. The ADB expects 7.7% economic growth for this year.
China’s trade surplus widened last month to a record $18.8 billion,
buoyed by an increase of trade with Saudi Arabia and the UAE. Following
their western counterparts, the Nikkei eased by 0.3%, whilst the Hang
Seng fell by 1.6%.
The dollar built on last weeks gain, rising by 1.3% on a trade weighted
basis, with the $NZ and the S. African Rand lower by 2.7% and 2.3%
respectively. Sovereign debt yields fell during the early part of the
week, before reversing their trend towards week end. The US 5 and 10
year treasury yields were higher by 0.5% and 1% at 4.7% and 4.77%
respectively.
Within the commodities complex, the oil price and the precious metals
were in retreat. The price of crude oil fell by 4.3% to $66¼ a barrel,
whilst the price of $ gold was 2.4% lower at $610oz. $ Silver sank by 5%
and the CRB was lower by 1.6%.
Next week sees the latest trade data out of the US, UK and Japan and an
update on inflation within the Euro-Zone, the US and the UK.
Monday is the 5th anniversary of the 9/11 tragedy and many people the
world over will pause to reflect on that day, plus the huge escalation
in violence over the past five years and at the alarming intransigence
shown by certain ‘world leaders’. In what is likely to be a day of
contradictions, ambiguities and sheer hypocrisy from speeches to be
made, George W has set the precedent with his statement, “I will never
forget the lessons of that day”.
“Someone
who thinks logically is a nice contrast to the
real world”
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