US July CPI came in as expected at
2.4% annualised and July building permits fell, which was also expected.
The June trade deficit “improved” to $58.1bn as did provisional
manufacturing data for August. It was another very volatile week, with
huge swings for the major indices and thanks to the trend reversal,
assisted by the Fed news late in the week, the Dow ended lower by 1.2%,
whilst the S&P 500 and the NASDAQ lost 0.5% and 1.6% respectively.
.
Inflation data was also due out for both the UK and the wider Euro-Zone
this week, with the former causing great surprise as the announced July
CPI figure was 1.9% versus the consensus expectation of 2.3%.UK average
earnings for June were at 3.3% year on year, whilst the latest
“official” unemployment rate was set at 5.4%. Euro-Zone CPI for July was
also at 1.9% and Q207 GDP for the region slowed to 2.5% against an
expected 2.8% and well below the Q107 3.1% rate. The UK FTSE 100 added
0.4% over the week, after massive swings in both directions, similar to
the German Dax’s gain of 0.5%, whilst the French CAC 40 lost 1.6%.
Out East, Japanese Q207 GDP collapsed to 0.5% from the first quarter’s
3.3% and the Nation’s department store sales also fell by 4.3% versus
the prior rise of 5.5%.China’s retain sales are growing at the fastest
pace in over 3 years, which explains the jump in inflation in July,
which at 5.6% annualised is at a 10 year high, prompting speculation of
a 4th interest rate hike in 2007.. The Nikkei collapsed by 9% on the
weak economic statistics, whilst the Hang Seng fell by 6.5%.
On the currency front, the $US index gained 0.9% to 81.4, despite the
3.7% surge in the Yen against the dollar. Government debt continued to
benefit from the “credit turmoil”, with German 10 year Bund yields lower
at 4.29% whilst US Treasury yields continued their falls of late. The 5
and 10 year yield were lower by 5% and 2.2% respectively, ending the
week at 4.34% and 4.67% and bringing the past 4 week fall in yields of
13% and 8%.
Within the commodities complex, fears over an impending Hurricane kept
support under the $crude oil price, which gained 0.5% over the week to
$71.8 a barrel, whilst most other commodities fell on Global slow down
worries, including the. $Gold price, which fell by 2.2%, ending the week
at $667oz
Next week sees the latest leading indicators, durable goods orders and
new home sales , for the US, whilst the UK Q207 provisional GDP numbers
are announced and Q207 Government spending figures. The June trade
balance for the Euro-Zone is also scheduled for release and in Japan a
Central Bank policy meeting will be held and we get to see the latest
machine tool orders.
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For the first time in over a year the Fed is now implicitly admitting
that they underestimated the downside growth risk. Until now the
official Fed view was that the housing recession was contained and
bottoming out and not spilling over to other sectors of the economy; and
that the sub-prime problems were also a small and contained problem. The
sudden shift to a “easing bias” suggests that the Fed miscalculated
until now the damage to the economy and to financial markets of the
housing recession. Let’s see if a ½% rate cut makes any difference?
“Success is getting and achieving what you want.
Happiness is wanting and being content with what
you get”
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