Week ending 19th January 2007      

US consumer confidence jumped to its highest level in December since January 2004, according to the latest University of Michigan survey, aided no doubt by New York City achieving its lowest unemployment rate in 2006, at 5%, since records began back in 1976. Further good news emanated from the housing sector, where December housing starts increased by 4.5% and building permits rose by the most in 4 years. The good news however was dampened by the latest inflation data, which showed December CPI higher by 0.5% (2.5% year on year) and producer prices up by 0.9% (1.1% year on year). Inflation concerns were reiterated by various Fed members suggesting that interest rates will not fall any time soon. Q406 earnings results showed all time highs for many banking stocks, led by Merrill Lynch's 68% surge in profits, whilst leading tech stocks such as Apple, Intel and IBN undermined the Nasdaq. Over the week, the Dow moved a whole 9 points ending it level, as did the S&P 500, whilst the Nasdaq lost 2.1%.

Within Euro land UK gross mortgage lending rose by 20% in 2006, to a record $682 billion, according to the Council of Mortgage lenders and the countries money supply expanded by 12.8% over the past year. Staying with the UK, December CPI was at 0.6% and 3% year on year versus the Bank of England’s 2% target and at the highest rate in a decade. Elsewhere, German investor confidence reached a 6 year high in January, whilst inflation in Ireland is now running at 4.9%. Despite plenty of gyrations within the main bourses, the UK’s FTSE 100 and the French CAC 40 remained level over the week, whereas the German Dax managed a 0.6% rise.

Out East, the Bank of Japan held interest rates at the 0.25% level, whilst Japan’s households became their most pessimistic in a year, no doubt troubled by falling wages in December. Hong Kong’s unemployment level remained at a six year low in December at 4.4% and money supply in India is running at 20% annualised. The Nikkei gained 1.5% on the week, whilst the Hang Seng jumped by 3.6%.

The $US index dipped by 0.2% to 84.9 over the week, and the Japanese Yen declined by 0.7% to a 4 year low. Government Bond yields ticked higher in the US, UK and the wider Euro-zone, all spooked by the higher CPI data.

Within the commodities complex, the $ crude oil price fell below the $50 mark for the first time in 20 months, before rallying to end the week at $53.4 a barrel, a 0.9%.fall The $ gold price continued with its increased volatility of this month, ending the week higher by 1.5% at $636oz.

Next week sees the release of December home sales, durable goods orders and leading economic indicators for the US, whilst the advance Q406 GDP number is announced for the UK. Japan’s December trade balance and January CPI data is released, as is the latest Euro-zone money supply figures. We get a glimpse at French unemployment and housing starts and German CPI and PPI for December.

The Federal Reserve’s survey of current economic conditions, better known as the ‘Beige Book’ was released last week. The report states that economic growth is expanding at a modest pace and the labour market is poised for further expansion. The latter seems at odds with the fact that 600,000 jobs created during the past 4 years were within the housing sector, a sector which is now contracting fast

“Only the wisest and stupidest of men never change.”

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