It was a short week in US trading due
to the holiday on Monday for Presidents Day, but economic data included
the January CPI number, which jumped by a larger than expected 0.3% and
January leading economic indicators, which were weaker. The released
minutes of the last FOMC meeting re-iterated concerns over inflation
whilst the slowdown in residential housing has impacted Home Depot, the
leading home improvement retailer, who reported that fourth quarter
earnings dropped 17% on a 4% increase in revenue Over the week, the Dow
fell by 1% and the S&P 500 eased by 0.3%, whilst the tech rich Nasdaq
gained 0.8%,
Within the Euro-Zone, the U.K. economy grew at the fastest pace in 2 1/2
years in the fourth quarter as household spending and investment surged.
GDP increased by 0.8% from the prior quarter, with an annual growth rate
of 3%. Staying with the UK, the Treasury had a 10.3 billion pound
surplus in January, the biggest in five years, whilst the release of the
minutes of the latest Bank of England MPC meeting showed a surprising 2
of the 9 members’ voting for another rate hike. Elsewhere in Europe, the
surprise resignation of Italian Prime Minister Romano Prodi opens the
way for a possible 62nd new Government in 50 years. For the week the
UK’s FTSE 100 eased by 0.3%, the French CAC 40 remained level and the
German Dax was higher by 0.5%.
Out East, the Bank of Japan increased interest rates by Ľ% to 0.5% as
January department store sales remained flat. The Country also reported
an unexpected trade surplus for January, buoyed by a 50 percent surge in
exports to China and a drop in oil imports. Staying with exports,
Vietnam’s to the US saw a one third increase last year to $8.5BN Many of
the region’s financial markets’ were closed, due to the Chinese New Year
celebrations, but over the week the Nikkei gained 1.8% , whilst the Hang
Seng rose by 0.7%,
The $US index was unchanged over the week at 83.99 and the Japanese Yen
remained weak, despite the aforementioned interest rate move. US
Treasury 5 and 10 year Bond yields eased by a further 0.3%, ending the
week at the 4.7% level. A growing pool of investors in emerging markets,
which now includes central banks, pension funds, life assurance groups
and retail investors, saw trading volumes of overall emerging market
debt climb by 19% to a record high of $6,500bn in 2006.
Within the commodities complex, the $ crude oil price jumped by 2%,
ending the week at $61 a barrel, Gold had another volatile week, ending
it higher by $US 2% at $687oz.
Next week sees a European Finance Ministers’ meeting, where the weak Yen
will remain high on the agenda. The latest money supply, consumer
confidence and CPI data for the Euro-Zone is released. The US releases
Q406 provisional GDP numbers and personal consumption figures, along
with December home prices and January durable goods orders. The UK also
announces house prices for February and January consumer credit and
mortgage approvals. Japanese CPI and housing starts, together with
industrial production figures, are also due.
After an 18 quarter run of double-digit earnings gain for S&P 500
companies, the Q406 number came in at just under 10%. According to
“Thomson Financial” analysts’ that it had polled are projecting a 4.5%
rise in Q107 earnings, down from the 8.7% projected just two months ago.
If earnings are to be halved, then the US stock market is at dangerous
levels.
“Genius
has its limits, stupidity has none”
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