Week ending 18th May 2007   

Wall St’s Bull run continued this week, despite continued weak economic data, as evidenced by the latest leading economic indicators’ index which contracted by 0.5%, a fall in building permits and disappointing results from the retail sector. On the plus side were the April CPI numbers, if you believe them (see more below) and continued M&A activity and Private Equity buyouts. The Dow rose by 1.7%, pushing to yet another new all time high, whilst the S&P 500 added 1.1%. For a second consecutive week the Nasdaq ended lower, this week by 0.2%.
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The Euro-Zone Q107 GDP came in higher than expected, at 0.6% or 3.1% annualised, whilst the area’s CPI number for April was said to be 0.6% or 1.9% year on year? There was similar nonsense out of the UK, where the Bank of England’s latest inflation report put CPI at 2.8% year on year, with the core figure, which excludes food and energy, at 1.8%. Meanwhile the country’s average earnings in April were at 4.5% and average house prices are rising at a 10.9% pa clip, according to the Department of Communities and Local Government. The FTSE 100 ended the week higher by 1.2%, whilst the French CAC 40 and the German Dax rose by 0.8% and 1.7% respectively.

Out East, “inflation” in China accelerated to 3.3% in March, whilst the Shanghai Composite Stock Index is up by 162% over the past year (no inflation there then?). Elsewhere, the Bank of Japan left interest rates on hold, at 0.5%, as March leading economic indicators fell, as did April consumer confidence, whilst Asia’s 5th largest economy, Taiwan, looks set to grow at 6% for a second consecutive year. Over the week the Nikkei fell by 0.9%, whilst the Hang Seng index jumped by 2.1%.

The $US index rose to 82.2, the highest level in 3 months,. Sovereign debt yields marched higher around the Globe (possibly spooked by those benign inflation numbers). The US Treasury Bond 5 and 10 year yields jumped by 3.1% and 2.9% respectively, ending the week at 4.73% and 4.8%.

Within the commodities complex, the $crude oil price jumped by 2.9% to $66 a barrel, unnerved by unrest in Nigeria, whilst the $Gold price fell by 1.5%, ending the week at $662oz..

Next week sees the release of US durable goods orders for April and the latest US new and existing home sales, whilst the UK announces Q107 GDP data and the Government’s PSBR for April. The latest trade figures are also due out for the Euro-Zone and Japan.

Returning to those “inflation statistics”, Government departments are, of course, talking about the price of “goods and services”, and relating them to a basket of them judiciously selected by Government officials. In the real World, inflation refers solely to any increase in the combined total stock of money and credit. With official “money supply” figures running at 12% annualised for the US and the Euro-zone (14% for the UK and OZ), not to mention the 42% for Russia and 18%pa for China and India hyper inflation, better known as bubbles’ have been evident in many stock and property markets’ around the World. Wonderful that this is in the short term (for those invested) higher asset values do feed through to the price of “goods and services”, which are usually checked by higher interest rates. The warnings are there for those who wish to see.

“One joy scatters a hundred griefs”

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