There was more evidence on the slowing
US economy this week as the ISM manufacturing index fell to 51.2 in
October from 52.9 in September. Over 60% of US retailers missed their
Q306 forecasts, including the world’s largest Wal-Mart, who now looks
set to start a price war ahead of the Xmas shopping season, to the
further detriment of both the sector and the economy. Adding to concerns
was Q306 productivity, which was flat whilst wages increased by 3.8%
annualised. The one piece of good news, assuming that you believe the
figure, was that unemployment in October fell to a 5 year low at 4.4%,
albeit that the October jobs created surprised on the upside. It was the
latter ‘jobs growth and higher wages’ that spooked both the equity and
the bond market towards the weeks end as traders are now unsure as to
whether the Fed will ease. Over the week the Dow and the Nasdaq fell by
0.9%, whilst the S&P 500 index was lower by 1%.
Europeans’ confidence in the economy increased more than expected in
October, according to the latest survey across the dozen nations sharing
the Euro. At 110.3 the figure is at its highest since February 2001 and
was no doubt buoyed by the fall in German unemployment to below the 10%
level. The ECB left interest rates on hold at 3¼% despite the high money
supply of late. Turning to the UK, mortgage approvals rose to a two year
high in September as did personal bankruptcies. As at Q306, the latter
has risen by 55% over the past year and is at the highest levels since
records began in 1960. Norway raised interest rates by ¼% to 3¼%. The 3
major bourses followed the lead of Wall Street as the FTSE 100 index
eased by 0.2%, whilst the French CAC and the German Dax fell by 1.1% and
0.4% respectively.
Out East, Japanese household spending fell by the most in September in
almost 5 years as wage growth stalled. Meanwhile, India’s Central bank
raised interest rates by ¼% to 7¼%, the 4th rise this year in its effort
to curb record borrowings. Turning to China, there are conflicting views
as to whether the authorities are succeeding in slowing down the rate of
growth. Manufacturing activity expanded at a slower pace in October as
new orders eased, yet the IMF’s ‘mission chief for China’, Steve Dunaway
said he had ‘considerable doubts’ that the Chinese authorities were
winning the battle to slow growth to a more sustainable level. Over the
week, the Nikkei fell by 2%, whilst the Hang Seng rose by 2.5% to a new
all time high at 18750.
The dollar index added 0.2% to 85.7, whilst the unexpectedly strong US
jobs data caught the bond market by surprise, pushing yields sharply
higher. The 5 and 10 year treasury yields jumped by 3.5% and 3.7%
respectively over the final day of the trading week.
Within the commodities complex, the $ oil price eased by a further 2%,
ending the week at $59 a barrel. Uranium prices surges by 7% to a record
high and has seen a 6 fold rise in price since October 2001. Within the
precious metals complex, $ gold rose by 4.9% to $629oz whilst the price
of platinum jumped by 11% on speculation that an ETF linked to it may
shortly be introduced.
Economic data due for release next week includes the September leading
economic indicators index for the UK, the Euro-Zone and Japan, with PPI
numbers and retail sales for the EU also due. The latest trade balance
are announced for the US and the UK and the latter also sees the Bank of
England MPC meet up to discuss interest rate policy.
The US mid-term elections are now here. According to the polls, it is a
foregone conclusion that the Republicans will lose control the House of
Representatives. The only doubt appears to be over whether they will
also lose control of the Senate (where only one third of the seats are
at stake). Either way, loss of one house ups the political stakes for
George W as moves for impeachment over the lies leading up to the ‘War
on Iraq’ appears to be likely. The stock, bond and the gold markets are
sensing political uncertainty this week.
“The
Presidency has many problems but boredom is the
least of them”
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