The latest economic data out of the
United States added to more concerns, as the trade deficit for July was
announced at $68.04 billion, a new monthly record. US retail sales in
August posted the weakest showing in two months as the Commerce
Department reported that the nation’s retailers saw a 0.2% increase in
August versus the 1.4% for July and an actual 0.5% decline in June. The
US Labour Department released the August CPI number, which laughingly
came in at 0.2% as did the core rate. Core is now running at 2.8% year
on year, with the headline CPI at 3.8% annualised. It was a bad week for
the auto industry as Ford announced a plan to cut 10.000 salaried jobs
and an offer to 75,000 of its employees a buy out package in an effort
by the company to save $5 billion pa in its costs. Over the week the Dow
gained 1.5%, the S&P 500 1.6%, whilst the Nasdaq flew by 3.2%.
A European Central Bank council member, Nicholas Garganas, said that
economic growth and inflation may prove even stronger than forecast and
suggested scope to keep raising interest rates. Meanwhile the Swiss
Central Bank raised interest rates for the 4th time in a year, whilst
Iceland’s CB raised the benchmark rate to a record 14% as it seeks to
cool inflation that is at three times the target rate. The UK’s trade
deficit widened in July as exports fell, whilst inflation in August rose
to the highest level in 9 years. Some suggest that UK house price
inflation is gathering momentum, which combined with the up tick in the
general level of inflation suggests a further interest rate hike.
British defence contractor BAE Systems posted a 28% improvement in its
H106 profits, whilst Daimler Chrysler revised expectations lower. Over
the week, the UK FTSE 100 index was level, whilst the French CAC 40 and
the German Dax indices ended it higher by 1.4% and 2.5% respectively.
Out East, Japanese Producer Prices rose at the fastest pace in 25 years,
whilst the countries current account surplus rose by 7.1% in July from a
year earlier. Elsewhere, China’s trade surplus rose to a record, for a
fourth straight month in August, but Australia’s rate of economic growth
is slowing rapidly, as GDP grew by just 1.9% over the past year despite
credit growth expanding by 14.8% over the same period. South Korea’s
unemployment rate fell to 3.4% in August from 3.6% a year earlier. Over
the week, Japan’s Nikkei fell by 1.3%, whilst the Hang Seng rose by a
modest 0.5%.
The $US index managed a 0.2% rise, despite the higher trade deficit
number and the comment out of the IMF’s annual shindig, held in
Singapore this week. "A ‘disorderly’ drop in the dollar is the
biggest risk to world financial markets”, says the IMF. US Treasury
bond yields edged higher, after their exceptional fall of late. The 5
and 10 year yields rose by 1.1% and 0.6% respectively, ending the week
at 4.75% and 4.8%.
Within the commodities complex, the price of crude oil fell by a further
3.4% to close the week at $64 a barrel, its lowest level since late
March and just $3 above the level at which is started the year. The $
gold price gave up 5.5%, ending the week @ $577oz, whilst the price of
silver collapsed by 11%.
Next week sees the release of the latest current account balances for
the Euro-Zone and the US and a peek at the UK public finances and money
supply for August. Japan releases its latest trade data and its August
department store sales, over a 4 day trading week. Returning to the US,
aside from the latest PPI and home sale figures, the FOMC meets to
discuss and announce any changes to the nation’s interest rate.
The G7 finance ministers met in Singapore over the week-end and whilst a
full brief of their meeting is yet to be issued, the focus is on the
rapidly slowing US housing market, with its potential catalyst for a
global economic melt down. Meanwhile, as the IMF meeting ended, it
warmed “financial markets have failed to price in the risk that any
one of a host of threats to economic stability could materialise and
deliver a massive shock to the World Economy”.
“Worry
is like a rocking chair - it gives you something
to do, but gets you nowhere”
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