Week ending 6th July 2007   

It was a holiday shortened week in the US thanks to the Independence Day celebrations and a light one for economic data. Pending home sales fell by 3.5% in May and are 13.3% lower that a year ago, whilst June non farm payrolls surprised on the upside, at 132,000, with the “official” unemployment rate now at a 4.5%, a six year low. The stock price of Hilton Hotels soared as private equity group, Blackstone, stumped up $26BN to acquire the company, whilst several tech majors, such as Apple, Research in Motion and Intel hit either all time or 52 week highs for their share price. The Dow gained 1.5% and the S&P 500 1.8%. The NASDAQ, meanwhile jumped by 2.4%.

Euro-Zone unemployment fell to 7% in May, a 7th consecutive monthly decline, whilst the “Zone’s” retail sales and PPI for the same month came in at -0.5% and 0.3% respectively. As expected the Bank of England’s MPC raised the UK base rate by ¼% to 5.75%, a 6 year high, whilst the ECB left its rate on hold at 4% but hinted that it would increase by 0.25% later this year. Peter Wuffi, the CEO of Swiss based mega-bank UBS, was ousted following the recent losses incurred by the companies foray into Hedge Funds’. European bourses were buoyed by the Auto sector whilst the UK stock market was ramped by further M&A rumoured activity. The UK FTSE 100 gained 1.2%, whilst the French CAC 40 and the German Dax were higher by 0.8% and 0.5% respectively.

Out East Japan’s Q207 Tankan survey showed uplift, albeit below consensus estimates. Elsewhere property sales in Hong Kong soared by 32% over H107 at $US27BN and China’s trade surplus for the first half of this year is rumoured to have increased by 60% to4US110BN, according to the state run Xinhua news agency. The Nikkei was level over the week, whilst the Hang Seng jumped by 3.5%.

On the currency front, the $US index fell by a further 0.6% over the week, ending it at 81.4. Government Bond yields resumed their climb after last weeks respite, with the German 5 year and Japanese 10 year rising to 4.68% and 1.93%.US Treasury Bond 5 & 10 year yields rose by 3.3% and 3.2% respectively, ending the week at 5.1% and 5.2%.

Within the commodities complex, the $crude oil price continued its climb of late, rising by 3% over the week to $72.8 a barrel, whilst the $Gold managed a gain of 0.6%, ending the week at $655oz

Next week sees the release of the May trade balance and June retail sales for both the US and the UK, with the Euro-Zone Q107 GDP and May Industrial Production due. In Japan, we get a peek at the latest bank lending and money supply figures and the May machinery orders.

Late payments and defaults by overstretched home owners’, leading to big problems within the US sub prime mortgage market, spilling over to Global financial markets. The perception of a sub-prime borrower tends to be of someone of dubious credit worthiness and possibly on a low income. However, 5 of the top 10 metropolitan areas with the most sub-prime loans are in California, with even the famous Beverly Hills “90210” zip code, with all of its celebrity residents, having 420 outstanding.

“What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience”

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