Week ending 25th May 2007   

US durable goods orders for April rose by 0.6% versus the expected 1%. New home sales, which represents about 15% of the market, jumped by 16.2% last month, albeit on large price discounts as builders’ tried to reduce the increased inventories (now running at 8.5 months, an all time record.) Reality set in when existing home sales were reported, which fell by 2.6% and for a 9th straight month. The stock bulls’ were held in check this week as the former Fed Chairman, Alan Greenspan, noted that he fears a “dramatic contraction” in the Chinese stock market. The Dow eased by 0.4% over the week whilst the S&P 500 was lower by 0.5%. The Nasdaq remained level.
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The Euro-Zone March trade balance came in higher than expected, at 7.4bn versus the -1.7bn in February. Industrial orders improved as did the latest Zew business sentiment survey, which jumped to 22.3 against the forecast 15. The UK economy grew by 0.7% in Q107, annualising at 2.9% and April money supply data, which was at a far greater lick than anticipated, explained the recent interest rate rise, which was voted for by 9-0 members of the MPC. The FTSE 100 fell by 1%, and the French CAC 40 was lower by 0.7%. The German Dax bucked the trend by rising by 1.7%.

Out East, “inflation” in Japan was at Zero in April, perhaps justifying why interest rates there have been left at such a low level. Singapore’s economy expanded at 7.6% in Q107, whilst Macau drew in 2.23 million visitors during April, 19% higher than a year ago. Over the week the Nikkei rose by 0.5%, whilst the Hang Seng index fell by 1.8%.

The $US index edged higher to 82.27, and US Treasury Bond yields moved higher, with the 5 and 10 year ending the week at 4.79% and 4.86% respectively.

Within the commodities complex, the $crude oil price eased by 0.3% to $64.75 a barrel, whilst the $Gold price fell by 1%, ending the week at $656oz..

Next week sees more data on US home prices and American consumer confidence, plus the latest personal income versus expenditures. The UK releases April mortgage approvals and consumer credit numbers, whilst the Euro-Zone CPI stats for May are announced.

The total outstanding value of derivatives contracts has surged to $US415 Trillion at year end 2006, 40% growth in 1 year, according to the Bank for International Settlements. The frenetic pace of financial innovation currently underway within the banking and hedge fund community has posed concerns for regulators’ and the more prudent investors’ alike. Compounding these concerns have been the ever larger deals cemented within the Private Equity world, deals that are now away from regulated exchanges.

“Salvation does not come ready packaged”

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