There was a further economic weakening
in the US, as evidenced by an ‘unexpected’ drop in the Philadelphia
manufacturing index, which shrank for the first time in 3 years. Also,
the Conference Board’s index of leading indicators showed that an
economic down turn might extend into next year. With this and further
signs of a rapid slowdown for the all important housing sector, it was
not surprising to see the FOMC leave US interest rates on hold at 5¼%.
Amaranth became the latest Hedge Fund to suffer from very high leverage
when on the wrong side of a trade. $5 to $6 billion was wiped off the
fund’s $9 billion value in one month as the fund manager bet big time on
Natural Gas. Amidst this uncertainty, a coup in Thailand and the
aforementioned political unrest in Hungary, weighed on stocks. After
flirting with all time highs, the Dow corrected on Thursday and ended
the week lower by 0.5%. The S&P 500 and the Nasdaq indices fell by 0.4%
and 0.8% respectively.
Within Euro land Germany’s Zew Centre for European Economic Research
Index of ‘investor and analyst expectations’ fell for the 8th
consecutive month in September to the lowest level since January 1999.
Italy’s unemployment rate fell to 7%, the lowest level in 14 years,
whilst the UK continued to do what it is best at, as UK mortgage lending
rose to a new record in August. European Central Bank officials,
meanwhile, stated their concerns for inflation in 2007, indicating that
they will continue to raise interest rates into next year. For the week
the UK FTSE 100 index lost 0.9%, the French CAC 40 remained level,
whilst the German Dax gave up 0.9%.
Out East, the military coup in Thailand raised concerns of a regional
‘contagion’, similar to the 1997 crisis, as the Thai military ordered
all banks, stock exchanges and offices closed. Thus far at least the
coup has been bloodless. Land prices in Japan’s three largest cities of
Tokyo, Osaka and Nagoya all rose in the year ending July 2006. As
further evidence of an end to the persistent asset deflation since the
early 1990’s, Richard Li, the Hong Kong based tycoon sold the Pacific
Century Group’s landmark building in central Tokyo for $1.7 billion, the
highest price ever paid for a single property in Japan. Staying with
Japan, the country’s trade surplus surged in August as auto shipments to
the US rose at the fastest pace in almost a decade. Hong Kong has
overtaken London for the highest prime office space rents, with asking
prices reaching $244 per square foot versus £206 in London. Tax
collections in India jumped by 30% over the April to mid September
period, according to Bloomberg sources, whilst South Korean consumers
have become the most pessimistic in 2 years, signalling a slow down in
Asia’s 3rd largest economy. Japan’s Nikkei fell by 1.5% over the week,
whilst the Hang Seng jumped by 2.1%.
The dollar index fell by almost 1% to 85, with gains seen by the Swiss
Franc and the British Pound. A swing to a current account deficit
whacked the South African Rand, which fell by a hefty 5% over the week.
Government Bond Yields continued to fall within the US, Europe, UK and
Japan, with the former 5 and 10 year treasury yield spiking lower by
4.4% and 4.2% respectively, seeing them end the week at 4.55% and 4.6%.
Within the commodities complex, the crude oil price fell by a further
5.6% over the week, ending it at $60.5 a barrel and now lower by 17%
year to date. The $ gold price, meanwhile, gained 2% to $589oz.
Next week sees the release of the latest home sales data for the US and
nationwide house prices in the UK. August Durable Goods Orders are also
announced in the US as is the final Q206 GDP numbers for the US and the
UK. September consumer confidence data is released for the Euro Zone,
whilst September CPI is announced for Japan.
The Thai coup at first sight appeared to be down to concerns over
‘corruption and the disputed February election result’, which saw
Tahksin Shinawatra reinforce his determination to remain as both
Thailand’s richest man and it’s most powerful elected leader. Digging a
little deeper however and it would appear that the coup may have been
sparked by a failed war on Islamists. According to sources briefed by
the army high command, Thaksin’s bungled response to the insurgency in
the south of the country, which has claimed 1700 lives in 2 years and
may spread north to the tourist resorts, was a critical factor in the
general’s decision to get rid of him.
“People
never lie so much as after a hint, during a war
or before an election”
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