According to the Conference Board, US
consumer confidence climbed in September, albeit that it was from a 9
month low in August, but the rest of the economic data released over the
week for the all important US economy was dire to put it mildly.
Manufacturing, as evidenced by the Philadelphia Federal Reserve Bank
Manufacturing Index fell to -0.4 in September, after a reading of 18.5
in August!. The National Association of Realtors reported the first
decline in year on year medium house prices for August of 1.7%, the
first year on year decline since 1995 and the second biggest fall in the
surveys 38 year history. Sales also fell for the 5th month running.
Durable goods orders fell by 0.5% in August, with July’s decline lowered
by 2.7%. Q206 GDP was revised lower to 2.6% from the earlier 2.9%, a
huge contraction on the Q106 5.9% number. If one looks in real terms the
US is now in recession. US stocks ignored all of this as the Dow Jones
Industrial Average closed on Thursday at 11718.45, just 4.5 points below
the all time high close of 11,722.98 it reached on January 14th 2000.
For the week, the Dow rose by 1.5%, the S&P 500 index was higher by
1.6%, whilst the Nasdaq Composite ended higher by 1.8%.
Euro Zone consumer confidence in September rose to its highest in more
than 5 years whilst inflation slowed to 1.8% in September, below the
ECB’s 2% limit for the first time since January 2005. Peugeot Citroen,
the French car maker announced its intention to cut 10,000 jobs. UK
economic growth for Q206 was revised lower, now showing an annualised
growth rate of 2.6% to August 2006. The countries outgoing Prime
Minister, Tony Blair gave his swan song to the party faithful at its
annual convention, stating that amongst the various achievements made
during his 9 years in power, was 37 quarters of consecutive economic
growth. According to a Bloomberg article, the $2.4 trillion UK economy
has actually grown in every quarter for 14 years, underpinned by
consumer spending, which accounts for two thirds of GDP. French GDP rose
in Q206, as both consumers and companies increased spending. Over the
week, the UK FTSE 100 rose by 2.4%, whilst the French CAC and the German
Dax indices ended it higher by 2.1% respectively.
Out East, Japan’s unemployment rate held near on 8 year low in August,
at 4.1%, whilst the countries inflation rate accelerated to 0.3% in
August, supporting the Central Bank’s forecast that the economy is
exiting from 7 years of deflation. China’s Central Bank’s research
bureau has forecast that economic growth in China will accelerate to
10.5% this year, with inflation falling to 1.5%, as Hong Kong’s export
growth slowed in August for the first time in 3 months, as US demand
slowed. For the week, Japan’s Nikkei Dow surged by 3.2%, whilst the Hang
Seng eased by -0.3%.
The foreign exchanges saw the Dollar Index rise by 0.9% to 86 and higher
by 1.3% over the quarter, whilst the British Pound fell by 1.5%.
Government Bond yields rose over the week in Japan, Europe, the UK and
the US, with the latter’s 5 and 10 year treasury yield higher by 0.9%
and 0.8% respectively.
Within the commodities complex, the $ oil price jumped by 3.9% to $62.9
a barrel, buoyed by production cut rumours out of Saudi Arabia. The $
gold price rose above the $600oz level for the first time since the 8th
September for 1 day, before ending the week at $598oz, still 1.8% higher
on the week.
Next week sees the release of the latest unemployment data for the US
and the Euro Zone, with August PPI and retail sales for the latter. The
UK releases Q206 Mortgage Equity Release numbers, whilst Japan releases
its Q3 Tankan survey. Finally, the Bank of England MPC and the European
Central Bank hold their respective meetings on interest rate policy.
So US median house prices fell by 1.7% in August, compared to a year
earlier. Taken in isolation this may appear to be no big deal. But if
one factors in the importance of the housing sector to the US economy
and the massive debt behind it, it should sound alarm bells,
particularly as it was as recently as October 2005 that US house prices
were annualising at 16.8% year on year. The Federal Reserve wished to
see a slowing down in house price inflation, but this has been a
collapse.
“I
don’t think we have a bubble in house prices”
Alan Greenspan – May 2002
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