Week ending 23rd November 2007   

US housing starts actually surprised on the upside for October, albeit that building permits for the same month fell. The latest University of Michigan consumer confidence data edged higher, whilst October leading indicators were lower than forecast. The Fed revised its growth forecasts and “Ben” stated that future Federal Reserve releases would be “less mysterious.” The price of Freddie and Fannie’s stock plummeted this week, due to their write downs and respective losses, whilst Countrywide, the Nation’s largest mortgage lender, was forced to publicly deny that it was on the verge of bankruptcy. The Dow and the Nasdaq fell by 1.5% over the week, whilst the S&P 500 declined by 1.2% .

EU industrial orders fell in September, as did the Zone’s current account. The Belgo-French financial services group, Dexia, revealed a 28% decline in Q307 profits due to debt write downs, whilst the cost of protection against defaults by European banks have soared, due to concerns of the sectors ability to repay all of its debts. UK provisional money supply eased in October, at 11.8%, versus last month’s 12.8%, whilst Q307 GDP fell to 3.2%, below economist expectations. The Country’s new Chancellor, Alistair Darling, will shortly announce the preferred bidder for the stricken Northern Rock Bank, now in hock to the UK tax-payer to the tune of £25BN, with a market cap of just £400m. Paragon, the UK’s largest “buy to let lender,” saw its share price collapse by 50% as the company announced that it needed new funding, whilst the Alliance & Leicester advertised a 1 year deposit rate of 12% to attract funds (The UK base rate is at 5.75 %.) The FTSE 100 index eased by 0.5% over the week, whilst the French CAC and the German Dax remained level.

Out East, the risk of Australian and Japanese companies defaulting on their debt rose to the highest on record as downgrades on securities tied to mortgage bonds increased concern that losses at banks will widen and the iTraxx Australia Series 8 Index rose 2 bps to 67 bps, the highest since its start in 2004. This looks to be justified as Sumtomo Mitsui Financial Group Inc became the latest in a series of Japanese banks to feel the ripple of the US sub-prime crisis, as the bank announced a 30% fall in its H107 net profit thanks to credit losses and increased costs. Elsewhere, India’s money supply has increased to 23.8% annualised whilst unemployment in Hong Kong has fallen to 3.9%, a nine year low. The Nikkei fell by 1.8%, with the Hang Seng lower by 3.9%.

On the currency front the $US index fell by 1% to 75.05, as the Yen rose by 1.4% the Swissie by 1.2% and the Euro by 1.2%. German Bund yields declined by 7bps to 4.2%, whilst Japanese 10 year JGB yields fell by 5bps to 1.42%. For the US, 5 and 10 Treasury yields were lower by a staggering 7.3% and 3.3% respectively, ending the week at 3.41% and 4.01%.

Within the commodities complex, the $crude oil price gained 3.3% to $98 a barrel, tantalisingly close to the $100 mark whilst the $Gold price jumped by 4.8%, to $824oz, thanks to Friday’s $26oz rise.

Next week sees the latest house price and home sales data for the US, together with the latest consumer confidence numbers and durable goods orders, whilst the UK, releases October consumer credit and lending on dwellings figures. Consumer confidence and CPI estimates will be announced for the Euro-Zone, and Japanese October retail sales and industrial production data will be announced, together with the Country’s latest CPI number.

The US markets were closed on Friday and had a half day on Friday as America celebrated Thanksgiving. The “bulls” have got very excited about Friday’s 1.6% rally for the main stock indices, citing great market breadth figures (buys versus sells) and great “black Friday” sales at the shopping malls. However, Friday’s US market trading was completed on very light volume and just days after a “Dow Theory” bear market signal. This could be an interesting week indeed.

“If you don’t follow the stock market, you are missing some amazing drama”

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