Week ending 24th August 2007   

The recent “liquidity injections” from the Central Banks’ and a perceived prospect of further “Fed action”, including an early cut in the Fed Funds rate, reversed the financial markets’ short term trend after last weeks turbulence.

In the UK M4 credit growth rose 13% from a year earlier, compared with 12.9% in June and the Country’s public sector borrowing requirement deteriorated by £13BN in July. Increased UK Government spending during the Q207 assisted in Q207 provisional GDP coming in as expected at 0.8%. The Euro-Zone trade balance improved in June, as did industrial orders. However, the latest ZEW survey, a measure of business confidence, fell by 6.1%. The UK FTSE 100 added 2.6% over the week, whilst the French CAC 40 and the German Dax rose by 3.8% and 1.8% respectively.

Out East, The Bank of China) disclosed that it had almost US$1 billion of exposure in securities backed by U.S. sub-prime mortgages, far higher than most analyst expectations. Meanwhile, at the Bank of Japan policy meeting, interest rates were left on hold at 0.5%, not surprising gien current market conditions. The Nikkei jumped by 6.4%, partially recouping last weeks 9% loss, whilst the Hang Seng surged by 12.4%.

On the currency front, the $US index lost 0.9% to 80.7, with the Yen weaker by 1.3% and the Euro gaining 1.4%. Government Bond Yields were all over the place. By weeks end the German 10 year Bund yield was at 4.26% whilst the 10 year JGB was at 1.59%. For US Treasury’s, the 5 year yield jumped by 2% to 4.43% whilst the 10 year yield eased by 0.9% to 4.63%.

Within the commodities complex, the $crude oil price, fell by 1% to $71 a barrel, whilst the. $Gold price, gained 1.6%, ending the week at $678oz

Next week sees more housing data released in the US, together with Q207 GDP and personal consumption numbers. August CPI figures are due out for the Euro-Zone, as are the latest consumer confidence reading. From the UK we see the latest money supply data and net lending on dwellings, whist in Japan we should receive the August inflation data and July unemployment figures.
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During the May 2006 “market wobble”, Hedge Fund Amaranth managed to lose $6.5BN overnight due to over leveraged bets within the energy complex. Included within the client list was the San Diego local authority pension fund, which is now the poorer by $165 million. The recent Bear Stearns blow up has taken millions from the banks and the problems at Sowood Capital Management have wiped $350m from the Harvard University Endowment and have cost the Massachusetts state pension system $30m. Even the sleepy Manly Council, a suburb of Sydney, Australia, has admitted that it has “taken a bath” on “its” investments in US sub-prime debt. Do you know where your pension fund is invested?

“We don’t have a trillions of dollar debt because we haven’t taxed enough, we have trillions of debt because we have spent to much”