American consumer confidence is
faltering, according to the December preliminary University of Michigan
survey and US consumer credit fell by $1.2bn or at an annual rate of
0.6% in October, the largest decline in 14 years, according to the Fed.
In a quiet week for the release of economic data, all eyes were focused
on the November non farm payroll number, which pleased investors. It
came in at 132,000 new jobs created, far higher than expectations for
100,000 and digging deeper within the data, there were gains of 177,000
jobs in the service sector and a 45,000 loss within manufacturing and
construction. Curiously, official unemployment inched up to 4.5% from
the previous month’s 4.4%. US stocks benefited, with the Dow higher on
the week, by 0.9%, as was the S&P 500 index, slightly bettered by the
Nasdaq Composite, which gained 1%.
Turning to Euro land, an interest rate hike was expected of the ECB and
it arrived in the form of a ¼% rise to 3.5%, followed by the banks
President, Trichet, confirming that further hikes are likely to follow.
Meanwhile, the Bank of England MPC left rates on hold at 5% as UK house
price inflation accelerated at its fastest pace in 20 months in
November, according to a Bloomberg report. Swiss unemployment declined
to 3.1% in November, the lowest in 4 years. The UK banking sector was an
area of interest, as rumours emerged of a possible bid for Barclays by
the Bank of America. The Royal Bank of Scotland came out with a decent
set of results, whilst the world’s second largest bank, HSBC, saw its
share price marked lower in London as Q306 bad debt and sales growth
concerns affected sentiment. The regions main bourses enjoyed a good
week, with the FTSE 100 index higher by 2.2%, the French CAC 40 +2.5%
and the German Dax climbing by an impressive 3%.
Out East, Japan announced a disappointing Q306 GDP number. Exports have
been strong, due to the clearing of inventories at knock down prices,
but Japanese household expenditures have fallen by 2.4% over the year,
no doubt due to the fact of no wage increases over the past year for the
millions of salary men. Japanese corporate spending is also now falling.
Elsewhere, China’s November trade surplus was $23.8bn, bringing the
total for year to date and $157bn versus the $102bn achieved for the
whole of 2005 and OZ new business investment took a dive in Q306 as the
countries credit cycle slows. Over the week Japan’s Nikkei rose by 0.6%
whilst the Hang Seng gained 0.3%.
Within the currency markets, the $US continued its slide of late, at
least in the early part of the week, before spiking higher towards weeks
end, spurred by the jobs data, followed by US Treasury Secretary ‘Hank’
Paulson’s comment, “I feel very, very good about our chance of having a
really sustained recovery here”. The $US index rallied by 1.1% over the
week to 83.3, whilst the British Pound and the Euro, eased by 1.3% and
1% respectively. The stronger jobs number reversed the trend of late in
Treasury bond yields, with the 5 and 10 year yield spiking higher by
3.3% and 2.9%.
The commodities complex saw the $Oil price ease by 2.2% to $62 a barrel,
whilst the $Gold price ended a volatile week 3% lower at $631oz, despite
an announcement by the China Gold Association that the world’s largest
gold consumer is expected to see demand of 350 tonne this year versus
last years 300 tonne.
Next week sees the latest trade data from the US, UK and Japan and the
latest inflation numbers for the US, UK and the Euro Zone. There is an
interest rate decision due from the FOMC, where it is expected that US
rates will remain on hold.
As the consensus among US commentators continues to be one of a
‘Goldilocks’ variety, not too hot and not too cold, suggesting that the
financial markets should continue higher, we are alarmed at the recent
stock sales seen by US corporate chiefs. Last month they sold in
aggregate $63 of shares for every $1 they bought, the highest since
1987.
“When
the facts are fairly and honestly presented,
truth will take care of itself”
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