It’s a case of “bad
news is good news,” as far as investors’ are concerned, in respect that
each piece of weak US economic data will hasten additional interest rate
cuts This week saw more poor housing data, as the S&P/Case Schiller
house price index fell by 3.9% in July versus July 2006, whilst both new
and existing house sales fell by more than expected in August. Durable
goods orders in August also fell by 4.9% and September provisional
consumer confidence dropped by 5 points. One “bright” spot announced
during the week, was that Q207 GDP was forecast at the expected 3.8%.
The Dow managed a 0.6% gain whilst the S&P 500 remained level. The
Nasdaq rose by 1.1%.
The Euro-Zone M3 money supply was at 11.6% annualised in August, whilst
official CPI in September came in at 2.1%.The EU Commission’s economic
sentiment index fell in September and for the 4th consecutive month,
whilst in the UK Q207 GDP came in, as expected, at 3.1% UK average house
prices rose by 0.7% in September, according to the Nationwide, whilst
the August PSBR deteriated to £9.1bn, the largest monthly gain in 14
years. The FTSE 100 index rose by 0.2%, whilst the French CAC and the
German Dax were higher by 0.3% and 2.9% respectively.
Out East, Japan’s August trade surplus widened to $US6.5bn and the
country’s inflation rate remained negative, at -0.2% for August whilst
unemployment increased to 3.8% versus July’s 3.6%.. Consumer prices in
Singapore rose by 2.9% annualised in August, the fastest pace in more
than 12 years. The Nikkei rose by 1.2% over the week, whilst the Hang
Seng gained 3.8%.
On the currency front, the $US fell by 1% to 77.77 on a trade weighted
basis, an all time low since the floating exchange rate regime was
introduced over 30 years ago, whilst again the main beneficiaries were
the commodity linked currencies and the Euro. Government Bond yields
eased during the week, with the German 10 year lower by 3 bps to 4.32%
whilst Japan’s 10 year JGB remained unchanged at 1.68%.US 5 and 10
Treasury yields fell by 1.7% and 1.1% respectively, ending the week at
4.23% and 4.58%.
Commodities, as measured by the CRB index, had their biggest monthly
gain in 32 years, gaining 8.7%, led by wheat, oil and gold. The $crude
oil price jumped by 0.1% over the week to $81.7 a barrel, but higher by
10.4% over the month, whilst the. $Gold price jumped by a further 1.5%,
at $744oz, with its monthly gain at 10.5%
Next week sees consumer credit data for the US and the UK, with the US
also announcing the latest pending home sales data and employment
statistics. The Bank of England and the ECB decide on any interest rate
changes whilst Euro-Zone PPI and retail sales for August are released,
together with the Q207 GDP forecast. Japan announces the latest Tankan
survey, together with August leading economic indicators.
The unrecognized dilemma today is that to sustain the bubble economy, it
requires continuous huge quantities of credit creation, which by nature
are high risk. Wall Street risk intermediation is impaired and the
market today seeks risk avoidance and de-leveraging, meaning that there
is little alternative than the banking system turning to risky lender of
last resort.
“Debt is the slavery of the free”
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