The US economy saw October housing
starts plunge by 14.6% to the lowest level since July 2000, according to
the commerce department. Building permits also fell, dropping 6.3% to
the lowest level since 1997. Consumer prices fell by 0.5% in October and
for the 2nd consecutive month, whilst the PPI fell by 1.6%, a record
monthly fall. October industrial production rose by 0.2% and capacity
utilization rose to 82.2%, slightly ahead of September’s 82.1%. Stocks
enjoyed yet another positive week, buoyed by the continued slide in oil
prices and on the presumption that the falling inflation data equals
lower interest rates. The Dow gained 1.9% over the week whilst the S&P
500 rose by 1.5%, exceeding and remaining above the 1400 level for the
first time in 6 years. The tech rich Nasdaq composite index jumped by
2.4%.
Turning to Euro land, the French Socialists have voted in a new female
leader, Seyolene Royal and fancy her chances of becoming the first
female President next year. The Euro zone trade balance improved by
0.5%, even though the deficit with China widened to a record. German
investor sentiment fell in October, for the 10th consecutive month and
UK CPI came in at 2.4% year on year in October. Staying with the UK,
according to a Bloomberg article, the $6.9 trillion residential property
market has risen by 8% over the past year and appears to be immune to
higher interest rates. Mining and energy stocks came under pressure
during this, as the FTSE 100 and the French CAC 40 indices eased by 0.3%
and 0.2% consecutively, whilst the German Dax gained 0.8%.
Out East, Japan’s economy grew twice as fast as expected in Q306 at 2%
annualised but October department store sales fell, as did Tokyo
condominium sales, down by 29% over the past year. Despite an
accelerating money supply in China in October, industrial output rose at
the slowest pace in almost two years. The Nikkei lost 0.2%, whilst the
Hang Seng gained 1.5%.
The $US index added 0.5% to 85.3, despite currency traders fears on
hearing the Peoples Bank of China announce that it had very clear plans
to diversify a good chunk of the countries $1 trillion foreign reserves.
The US yield curve inversion has steepened of late, usually a precursor
of recession, albeit that the 5 and 10 year treasury yield rose by 0.8%
and 0.5% this week, ending it with both benchmarks at 4.6%.
It was a volatile week within the commodities complex, with the CRB
index easing by 1.6%, led lower by crude oil, which fell by 6% over the
week and ending it at $56 a barrel. The $ gold price fell by 1.1% to
$622oz.
Next week is a quiet one in respect of economic data and particularly in
the US, ahead of next weeks Thanksgiving week end holiday. The US
releases October leading indicators, whilst the UK states October public
finances, money supply data and Q306 provisional GDP numbers. The Euro
zone announce its September current account, whilst in Japan, the latest
trade balance information is released.
A surfeit of liquidity in the financial markets has temped bankers to
underwrite and finance deals that may return to haunt them, according to
Eugene Leouzon, a top Goldman Sachs banker. Leouzon, who sits on the
investment banks global credit committee, stated that current conditions
are unprecedented, saying, “The things that we are seeing, both within
investment and non-investment grade, I would say are borderline stupid”.
Meanwhile, Jon Moulton, the head of buy out specialist Alchemy Partners,
has described 200 European companies as ‘headless chickens’ because
their private equity buyers, who have already repaid themselves their
entire equity investment by way of dividends, leave the 200 companies
loaded with extra debt. Milton must be rolling in his grave already and
we will end with one of his many sensible quotes.
“Inflation
is the one form of taxation that can be imposed
without legislation”
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