Week ending 1st December 2006      

This week, US durable Goods orders, consumer confidence, mortgage applications and new home sales all came in below expectations. The auto sector was in the lime light as Ford Motor Co announced that November US sales fell by 10%, with Jaguar sales down by 35%. GM auto sales jumped by 5.8%, buoyed by light trucks but the companies share price was hit as multi billionaire, Kirk Kerhorian sold his total stake in the company. Mega retailer, Wal-Mart announced that November same store sales in the US fell by 0.1% on a year on year basis. There was good news in that Q306 GDP was raised higher by the commerce department to 2.2% from the earlier 1.6% prediction, but this was undermined by the latest manufacturing sector figures which contracted in November, for the first time in 3 years. Over the week, the Dow fell by 0.7% whilst the S&P 500 eased by 0.3%. The tech leader Nasdaq composite lost 2%.

Euro lands largest economy, Germany, saw its unemployment rate fall below 4 million in November, for the first time since 2002, bringing the rate to 9.6%. German consumer confidence also rose to its highest level in 5 years, whilst UK mortgage lending hit a 3 year high in October at £9.8 billion. Elsewhere, Spain’s inflation rate rose in November, whilst Poland’s economy grew at 5.8% annualised during Q306, the fastest pace in 2 years. Over the week, the UK’s FTSE 100 index fell by 1.7%, whilst the French CAC and the German Dax, were lower by 2.5% and 2.7% respectively.

Out East, industrial production in Japan rose, whilst the country’s unemployment rate fell to 4.1% an 8 year low. Hong Kong’s export growth picked up in October, as did South Korea’s. Over the week, Japan’s Nikkei gained 3.7%, whilst the Hang Seng fell by 3%.

As mentioned above, it was another tough week for the $US, which fell by 1.4% to 82.42 on a trade weighted basis. Of the main crosses, the British Pound gained 2.5%, reaching a 14 year high against the dollar. Within the US treasury complex, the 5 and 10 year bond yields fell by 3.7% and 3.75%.

Within the commodities complex, the $ crude oil price jumped by 5.1% to $63.4 a barrel, whilst the $ gold price rose by 1.3% to a 16 week high at $646oz.

Next week is a quiet one for the US economic data, albeit that it includes the latest non-farm payrolls and average earnings figure. All eyes will be on Europe, as the ECB and the Bank of England’s MPC decide on any interest rate changes. Japan reveals Q306 GDP data.

Until the very recent past, market analysts were all suggesting a soft landing for the US economy, but now, as the $US tanks, the word soft has been quickly replaced by hard, particularly on the contracting manufacturing data and weaker house prices. The problem for stock investors is that to date, the main indices have ignored the change in rhetoric.

“A lie told often enough becomes the truth”

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