The unabated 3 month bull rally in the
US equity market has pushed the world’s most beloved stock index, the
Dow Jones industrial average, towards the 12,000 level, despite
continued poor economic data. This week saw the release of the September
trade deficit, which came in at $69.9 billion (or $839 billion
annualised), the second consecutive month at an all time high. September
retail sales, the engine of economic growth, were also a disappointment,
as they fell by 0.4%. US CEO confidence in Q206 sank to a 5 year low
according to a Conference Board survey of 100 chief executive officers
across all industry sectors and the release of the latest FOMC minutes
confirm dashed hopes of any interest rate cut on the horizon, as the
board of the Fed still see substantial risks to inflation. The Dow
gained 0.9% over the week, whilst the S&P 500 and Nasdaq indices were
higher by 1.2% and 2.5% respectively.
Euro land economic growth was revised higher to 0.9% during the second
quarter, assisted by stronger industrial production from Germany, which
at 7.2% year on year is at its fastest pace in 3 years. Britain’s trade
deficit was larger than expected in August at £6.7 billion, according to
the Office of National Statistics, blamed on a recent VAT fraud?
Meanwhile the countries factory gate prices fell in September for the
first time in 9 months. Staying with the UK, the telecoms sector saw
plenty of action as Car phone Warehouse pleased investors with an upbeat
report, only to see its share price hit after Vodafone dumped the group.
Orange, owned by France Telecom, was also rumoured to be considering
doing the same thing. BT group (formerly known as British Telecom) was
buoyed by bid rumours. Predictably, European bourses followed Wall
Street’s lead and the FTSE 100 index jumped by 2.6% over the week,
whilst both the French CAC and the German Dax gained 1.4% each.
Out East, Japan’s bank lending rose for an 8th month, extending its
longest expansion in a decade, as September’s increase came in at 1.6%.
Producer prices for Japan jumped by 3.6% last month and by the most in
25 years. The Bank of Japan, meanwhile, decided to leave interest rates
on hold. Elsewhere, Singapore’s economy expanded in Q206 at a much
faster pace than expected and China’s trade surplus in September was at
its 2nd largest on record. Japan’s Nikkei Dow 225 rose by 0.6%, whilst
the Hang Seng index gained 0.5%.
The $US index enjoyed a 0.7% gain over the week, whilst 5 and 10 year
treasury yields spiked higher by 2.7% and 2.3% respectively. Staying
with debt, recent research by Merrill Lynch states that triple A
corporate issues now account for only 8% of outstanding global debt
versus 15% in the mid 1990s, reflecting a greater acceptance of risk by
investors as they flock to lower credit ratings.
The commodities complex saw 17 and 19 year highs for lead and nickel
prices and big jumps for wheat, which surged by 13%, posting its biggest
weekly gain in 10 years and for orange juice which soared by 16%.
Meanwhile the $ crude oil price gained 0.9% to $60.3 a barrel and the $
gold price jumped by $16 or 1.6% to end the week at $583oz.
Next week is all about inflation, as the latest CPI data is released by
the US, UK and the Euro zone, three major economic blocks prevaricating
over interest rates. Japan meanwhile releases its latest leading
economic indicator survey and September department store sales.
Not even the detonation of a nuclear device by a member of the ‘Axes of
Evil’ was enough to derail the Bull Run. In fact it, and the recent $6.5
billion implosion by Hedge Fund Amaranth, went by unnoticed as punters
are too busy buying. US investors have shifted a record proportion of
their funds into foreign share markets this year. According to AMG Data
Services, which monitors mutual fund flows, of the $124 billion invested
so far this year into US equity mutual funds, $110 billion or 89% has
gone into overseas funds.
“Complacency
is the enemy of study”
[ Back ] [ Up ] [ Next ]
