One day after this the World’s “big
five” central banks, the Federal Reserve, the Bank of Canada, the Bank
of England, the European Central Bank and the Swiss National Bank
released plans of a co-ordinated offering some $100BN of liquidity to
the financial system in the “hope” that it will ease the credit crunch.
More later.
US economic data released this week started well, as October pending
home sales jumped to 0.6% from September’s 0.2% and the advance November
retail sales, which came in at 1.2% versus the expected 0.6% and
October’s 0.2%. Thereafter, however, the news deteriorated as the
October trade balance showed an increased deficit to $57.8BN from the
prior $57.1BN, an increase in jobless claims and finally those
horrendous inflation stats as November CPI showed an annualised jump to
4.3% from October’s 3.5% and PPI jumped by 7.2%, the fastest pace since
October 1981. The Dow fell by 2.1% over the week and the S&P 500 by
2.4%, whilst the Nasdaq gave up 2.6%.
Euro-Zone CPI increased to 3.1%
annualised in November, a six year high, against October’s 2.6% whilst
new car registrations fell by 1.3% against the prior month’s 5.3% rise.
Swiss wealth manager, UBS, saw its share price fall by 3.4% as the
company announced an additional $10BN of sub-prime losses and a capital
injection from the Singapore Government at a cost of 9% pa over two
years. UK inflation jumped in October by the fastest annual pace in 12
years, as evidenced by the PPI data, whilst the latest “official”
unemployment rate fell to 5.3% from the previous 5.4%.The FTSE 100 index
lost 2.4% over the week, whilst the French CAC and German Dax were lower
by 2% and 0.6% respectively.
Out East, retail sales in China are growing at 18.8% annualised and at
the fastest pace in 8 years whilst inflation has reached an 11 year
high, placing further pressure on the authorities to hike interest
rates. In Japan, bankruptcies surged in November to 11.1% annualised
versus the 8.1% in October and November consumer confidence has fallen
alongside a collapse by 43% in condominium sales. The Nikkei fell by 2.8
%, with the Hang Seng dropping by 4.4%.
On the currency front the $US index gained 1.5% to 77.43, whilst the
decliners included the £Sterling, the Swiss Franc and the Euro. German
Bund yields rose by 4bps to 4.35%, whilst Japanese 10 year JGB yields
fell by 2bps to 1.54%. For the US, 5 and 10 Treasury yields were higher
by 3.2% and 2.7% respectively, ending the week at 3.62% and 4.23%.
Within the commodities complex, the $crude oil price gained 3.7% to
$91.6 a barrel, as Goldman Sachs increased its average 2008 forecast to
$95 a barrel from $85, whilst the $Gold price eased by 0.3%, to $798oz.
Next week sees the latest retail sales data for the US and the UK with
the former providing more housing and growth data and the latter more on
inflation. The latest trade data is released for the Euro-Zone and
Japan, with the latter announcing its latest department store sales
report.
The Political and Central Bank “initiatives” of late, including the
super SIV fund; the 5 year interest rate freeze for US sub-prime
mortgages and the three FOMC interest rate cuts since August, have had
little, if any, effect. Now the big 5 Central Banks are to provide a
co-ordinated “liquidity injection” of $100BN, recognising that the “debt
problem” is Global and not just confined to America. If this latest
“initiative” fails to restore confidence then the central bankers’
credibility will likely evaporate.
“This would be a much better world if more
married couples were as deeply in love as they
are in debt”
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