Week ending 16th February 2007      

US economic data this week included the December trade deficit, which jumped by a larger than expected 5.3% to $61.2BN and January retail sales, which advanced by 0.3% ex autos. Producer prices for January fell by 0.6% whilst Daimler Chrysler announced that it will layoff 13,000 employees in a restructuring of the Chrysler US plants. Over the week, the Dow and the Nasdaq were higher by 1.5% each, whilst the S&P 500 gained 1.2%,

Euro-Zone GDP rose by a more than expected 0.9% in Q4, bringing the 2006 full year number to 2.7% and industrial production improved in December by 1% versus the forecast 0.4%. UK retail sales fell in January by the most in 4 years and house price inflation slowed, suggesting that the recent interest rate hikes are starting to bite. Meanwhile, UK wage settlements increased by 3.5% over the 3 months to the end of January, the highest in 8 years. For the week the UK’s FTSE 100 gained 0.7%, whilst the French CAC 40 and the German Dax were higher by 0.4% and 0.7% respectively.

Out East, Japanese Q406 GDP surprised at 4.8% annualised, the fastest pace in almost 3 years and consumer confidence rose in January. China’s trade surplus widened to $15.9bn in January and the countries banks’ were ordered to raise reserves, for the 5th time in eight months, in an effort to slow credit growth. South Korea’s unemployment rate remained at 3.3% in January, a 4 year low, as builders and finance companies hired staff. For the week the Nikkei jumped by 2.1% , whilst the Hang Seng eased by 0.5%,

The $US index fell by 1% over the week whilst the Japanese Yen jumped by 2% despite the aforementioned “trader selling” on the back of last weekend’s G8 reaction. US Treasury 5 and 10 year Bond yields fell by 2% respectively on Benanke’s soothing tone, ending the week at the 4.7% level.

Within the commodities complex, the $ crude oil price remained broadly level, ending the week at $59.9 a barrel, as did the $Gold price remaining at $669oz.

Next week sees the minutes of the most recent FOMC and the Bank of England’s policy meetings, whilst the Bank of Japan announces any change to their policy. US Inflation data for January is released as is the latest Public sector borrowing and money supply data for the UK. Japan releases figures for January trade and nationwide department store sales. With many Asian markets closed for the Chinese New Year celebrations over the next week and the US markets closed on Monday, due to the President’s day holiday, trade is expected to be slow.

2007 is the year of the Pig, also known by its former name of Ding Hai. The Chinese New Year 4705 begins on 18th February 2007 and the year of the Pig is considered to be very lucky, suggesting a surge in child birth this year. Based on Chinese astrology this year of the pig promises a year full of accomplishments and prosperity. Let us hope that the forecast is correct.

“If you want to understand today, you need to research yesterday”

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