Week ending 22nd June 2007   

US economic data was light this week, but housing continued to be in the doldrums as the housing market index fell to its lowest level in 16 years. May housing starts fell by less than analysts’ expected whilst new building permits surprised on the upside. Despite a successful IPO for Blackstone, good results from Morgan Stanley and an announcement by Home Depot that it was selling off a subsidiary (which appeared to please the market) the bears’ held sway, worried about the Bear Stearns problem and rising Bond yields. The Dow and the S&P 500 fell by 2% whilst the Nasdaq was lower by 1.4%.

Europe’s leaders have reinvented the constitution, which was voted down by France and Holland two years ago, by removing the central plank of why the EU was established 50 years ago, the internal market. Under the now renamed “treaty”, the leaders have opened the door for competition abuses and also hope that by using the word treaty that National referendums’ can be avoided. The German IFO indicator of business confidence for June disappointed, coming in at 19 versus 24 in May and below the consensus expectations for 26. Elsewhere, UK money supply growth accelerated in May to 13.8% year on year, the fastest pace in 7 months. The UK FTSE 100 fell by 2.5%, whilst the French CAC 40 and the German Dax were lower by 1.3% and 1% respectively.

Out East, Japan’s trade surplus widened in May by 9.3% as exports exceeded expectations, rising by 15.1%.Thailand also enjoyed an increased trade surplus in May, as its exports zoomed by 21% from a year earlier and Malaysia looks set to expand its economy by 6% this year. The Nikkei rose by 1.2%, whilst the Hang Seng jumped by 4.7%.

On the currency front, the $US index eased 0.6% over the week, ending it at 82.35 whilst the Yen sunk to a record low against the Euro and a 41/2 year low against the Dollar. Sweden’s Central Bank raised interest rates by 0.25% to 3.5% and suggested that there was another 0.5% to come later this year. Euro-Zone Bond yields were steadier after the recent rises, as were the 5 and 10 year US Treasury Bond yields which fell by 1.6% and 0.6%, ending the week at 5.02% and 5.14% respectively.

Within the commodities complex, the $crude oil price rose by 0.9% to $69 a barrel, whilst the $Gold price ended the week at $654oz, lower 0.25%.

Next week sees more on US housie prices, both existing and new, together with the May durable goods orders and the May PCE Deflator. Euro-land releases the May money supply data and June CPI whilst Japan announces May retail sales numbers, May unemployment and June CPI data.

All eyes and ears will be focused on the FOMC interest rate meeting, where they are expected to leave rates at 5.25%. It is almost an exact year since the Fed last raised interest rates, a period when nearly every other Central Bank has moved them higher. IF the Fed stands pat for an eighth consecutive FOMC meeting, one has to wonder if the market will continue do the job for them via the 10 year bond yield.

“Before borrowing money from a friend, decide which you need most”

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