Week ending 6th October 2006      

US stocks dipped on Friday, but finished the week higher after 3 consecutive days of record closing levels for the Dow Jones Industrial Average, although it remains some 17% below its January 2000 high in inflation adjusted terms. The big focus for the week was on jobs, as first up came the latest report by Challenger Gray and Christmas, who announced that US job cuts were up by 54% in September versus August at 100,315 of which 34% were in the auto industry. Friday saw the Labour Department figures, which saw jobs created in September at 51,000 versus the 125,000 expected, with an unemployment rate at 4.6%, down from 4.7% in August. Hourly earnings have risen at 4% year on year at a 5 year high. The Dow gained 1.5% over the week with the S&P 500 index up by 1%. The tech rich Nasdaq jumped by 1.8%, but remains 55% below its year 2000 all time high.

Euro land saw higher interest rates as the ECB raised its prime rate by ¼% to 3¼%, promising more to follow. The Bank of England MPC left rates on hold at 4.75%, no doubt fearful that Britain’s borrowings against the value of their homes rose by 13% during Q206 from a year earlier. The futures market, however, is predicting two further ¼% hikes for the UK by the year end. As French restaurateurs and bar owners grapple with the ‘non smoking’ policy recently enforced on the population, Italy’s bar owners reel at plans to raise the legal age for buying alcohol to 18 from the current age of 16. There were further delays announced by Airbus in respect of the A380 super jumbo and the company’s parent, EADS, issued a Euro 4.8 billion profits warning, whilst in the UK, gaming stocks went into a tailspin, after US legislation makes online gaming payments illegal. Party gaming plc, the big daddy of the UK quoted gaming stocks fell by 62% over the week. The broader indices, meanwhile, followed Wall Street’s lead, with the FTSE 100 index higher by 0.7%, whilst the French CAC 40 and the German Dax indices were ahead by 0.6% and 1.4% respectively.

Out East, Japan released its Q306 Tankan survey, which was generally upbeat as business confidence hits a 2 year high. South Korea’s exports climbed to a record in September, on rising sales of cars and chips (silicon that is). Indonesia’s central bank cut interest rates by 0.5%, the fifth reduction since May, bringing the rate to 10.75%. The Hang Seng added 2% over the week, whilst Japan’s Nikkei gained 1.9%.

The $US index rose by 0.7% to 86.5 on a trade weighted basis, whilst on the downside, the Norwegian Krone declined by 2.2% as the oil price sank. The US 5 and 10 year treasury yields moved higher by 1.25% and 1.4% respectively, ending the week at 4.64% and 4.7%.

Within the commodities complex, the $oil price fell by 5% over the week, ending it at $59.8 a barrel, whilst the $ gold price gave up 4¼% to $574oz after approaching its June low.

Next week sees the latest trade balances for the US, Japan and the UK, minutes from the 20/9 FOMC meeting are released and we receive Q206 Euro zone GDP and government expenditures; UK September PPI and money supply data out of Japan.

Despite a drop off in new Hedge Fund launches during the first half of 2006, private equity firms have raised a massive $300 billion so far this year, via 436 new private equity funds. According to Private Equity Intelligence, this is a 6% increase on the $283 billion raised for the whole of 2005 and smashes industry records. Scarier still has been the spate of ‘blank check’ IPO’s, better known as special purpose acquisition companies, or SPACS. So far this year they have raised $2.2 billion, which they promise to use for no known purpose!

“A fool and his money are soon parted”

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