US economic data this week included an
improvement for the trade deficit, as evidenced by the fall to $58.2bn
for the November 06 number. A further positive for the economy was that
December retail sales did better than expected at 1% ex autos. A
negative was that December import prices were higher by 1.1% (2.5% year
on year). On the stock front, Napster, the one time free music provider
saw its share price higher by 15% as it announced a subscription service
in conjunction with Time Warner. Apple saw an all time high for its
stock price on the launch of its I-phone, only to see a sell off towards
weeks end, as Cisco Systems challenged the ownership if the I-phone
trade mark and on further revelations in respect of Apple’s alleged
stock options manipulations. Over the week the Dow added 1.3%, with the
S&P 500 higher by 1.5%. Meanwhile the tech rich Nasdaq Composite raced
higher by 2.8%, despite warnings from the likes of AMD and SAP.
Turning to Europe, it was decision time for interest rates within the
Euro-currency zone and for the UK. ECB President Trichet left rates on
hold at the 3.5% level; whilst the Bank of England’s MPC ‘surprised’ the
market by announcing a ¼% rise to 5¼%, the third ¼% rise since last
August. Quite why everyone was surprised, when inflation is running at
2.7% and well ahead of the bank’s 2% ceiling, amazes. Staying with the
UK, industrial production picked up in November, whilst the December
consumer confidence index eased and the trade balance deteriorated. Q306
Euro zone GDP came in at 2.7% annualised, buoyed by Germany, who have
seen its strongest year of economic growth since 2000 on the back of
consumer spending, whilst industrial production in France fell in
November as car output slumped. The UK’s FTSE 100 index was volatile
around the interest rate hike but ended the week ahead by 0.3%, whilst
the French CAC 40 and the German Dax rose by 1.8% and 1.7% respectively.
Out East, China’s trade surplus with the US reached $214bn in November,
shattering the previous 2005 annual record of $202bn. China also
announced that it has sold 6.5m vehicles in the first 11 months of 2006,
a 25% increase on 2005, surpassing Japan as the world’s second largest
auto market. Perhaps of more importance to resource rich economy’s such
as Australia, Canada, Russia and the African continent is that China
already has a trade surplus in steel and base metals. Elsewhere, Japan’s
export growth accelerated in November and South Korea’s unemployment
rate fell to 3.3%. Japan’s Nikkei eased by 0.2% over the week whilst the
Hang Seng fell by 3%.
The $US index gained a further 0.5% over the week to 85.03 and it was a
good week for the £Sterling after the rate hike. On the downside were
the Japanese Yen and the Norwegian Krone, both falling by 1.4%. US
Treasury bond yields continued their march higher, with the 5 and 10
year yield jumping by 2.5% and 2.7% respectively, ending the week at
4.77%.
Within the commodities complex, volatility continued, as the $ crude oil
price fell by 8% before recovering a quarter of this, ending the week
lower by 5% at $54 a barrel. Likewise for the $gold price, which rose by
3.3% or $20oz ($13 of which was on Friday), ending it at $627oz. The
previous week saw a $31 fall, of which $19 was on the Friday.
It is a holiday shortened week for the US next week, as the country
celebrates Martin Luther King Day on Monday. The latest inflation data,
as measured by PPI and CPI, are due to the released within the US, Euro
zone and the UK. The US also announces December housing starts and
building permits, along with capacity utilisation data, whilst the UK
also released December retail sales figures. Japan and the Euro zone
announce their November trade position(s).
Despite the grotesque and dangerous US credit numbers the Dow has gone
to a new nominal high and stock volatility, a measure of fear has
remained at multi year lows. Against this a recent Wall Street Journal
article reports that 71% of US companies with Standard & Poor’s credit
ratings had ‘junk’ status. Worse still, 42% of these companies were
rates ‘B’ the lowest possible credit rating which is not vulnerable to
immediate default.
“There
are quantified risks, and then there is folly”
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