Week ending 2nd February 2007      

The Federal Reserve’s FOMC left interest rates on hold, at 5.25%, despite their stated concerns on inflationary pressures. Consumers’ spent more than they earned in December, the former rising by 0.7% as incomes rose by 0.5%. The Labour Department reported that non-farm payrolls increased by 111,000 in January, falling short of the expected 155k, whilst the latest consumer sentiment figure eased to 96.9 from the 98 of early January. Although US manufacturing is in (or close to) recession, the broader US economy surged ahead in Q406 to 3.5% annualised, according to the Commerce Department. Over the week, the Dow put on 1% and the S&P 500 1.4%, Tech was assisted by Google’s tripling of profits with the Nasdaq Composite higher by 1.9%.

Euro-land’s largest economy, Germany, saw its unemployment rate fall to 9.5% in December, the lowest level in 5 years, whilst Italian tax revenues jumped by 10% last year, according to the Finance Department. The UK’s 3rd biggest food retailer, Sainsbury, saw its share price move substantially higher, as a consortium of private equity groups announced that they were at the preliminary stages of assessing a possible bid. For the week the UK’s FTSE 100 gained 1.3% whilst the French CAC 40 and the German Dax rose by 1.8% and 3.1% respectively.

Out East, Japanese household spending fell by 1.9% year on year in December, the 12th strait month of falls, as the average real income for salaried workers’ fell by 6.5%, according to official data. Elsewhere, Hong Kong retail sales in December climbed by 11.55 Vs a year ago and the Reserve Bank of India increased interest rates by 0.25% to 7.5%.The Nikkei gained 0.8% on the week, whilst the Hang Seng eased by 1%, as Shanghai’s composite index sank by 7.3%, erasing the year to date gains.

The $US index eased by 0.3% over the week, as did US Treasury Bond yields, after the FOMC decision, with the 5 and 10 year yield ending the week at 4.8% respectively.

Within the commodities complex, the $ crude oil price jumped by 7.2% to $59 a barrel, whilst the $gold price touched the $660oz level before a Friday fall left the week end price at $646oz, still 0.9% higher than a week earlier. Copper fell by 8% and is now at a 10 month low.

Next week is light on US economic data, but includes Q406 unit labour costs and December consumer credit. The Bank of England’s MPC and the broader European ECB hold their respective policy meetings on interest rates, with the latest retail sales data released for both the UK and the Euro-Zone. Japan releases the latest bank lending figures and broad liquidity measures.

On Monday, President Bush will request from the US Congress almost $US 750 Billion for "defence spending", a part of the almost $US 3 TRILLION budget he will present for the fiscal year of 2008, which starts on October 1, 2007. At the same time, W is claiming that this budget is the first in a series which will "balance" the US budget by the year 2012. Now where have we heard that before?

“Losers make promises they often break. Winners make commitments they always keep”

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