Adding to the desperation was the
Federal Reserve’s “surprise” 0.75% cut in the Fed Funds Rate, the first
intra-meeting rate cut since the 9/11 panic.
As Wall St took its annual Martin Luther King vacation on Monday,
European markets were in turmoil, following a $7BN fraud at France’s
number two Bank, by market cap Societe Generale. This possibly explains
the Fed rate cut to 3.5%, but it may also have been the continued
disappointing economic data, which this week showed weaker manufacturing
news for January and a continued slide in existing home sales for
December. After a bumpy week for stocks, the Dow rose by 0.9%, whilst
the S&P 500 gained 0.4%.The Nasdaq gave up 0.6%.
The UK tax payer looks set to support the beleaguered bank, Northern
Rock,. for at least another 3 years, according to the FT, after
Chancellor Darling announced a plan to replace the £28BN Bank of
England’s loan to NR with bonds, backed by NR’s assets and guaranteed by
the Government. Staying with the UK, its provisional December money
supply number, as measured by M4, was running at a higher than expected
12.3% year on year rate, whilst Q407 advance GDP is at 2.9% annualised,
down from the prior quarter’s 3.3%. Growth in Europe’s service
industries, which represents about a third of economic output, cooled
this month to the weakest rate in 4 years. The FTSE100 index was lower
by 0.6%, whilst the French CAC and the German DAX fell by 4.2% and 6.8%
respectively.
Out East, the Bank of Japan left interest rates at 0.5% despite consumer
prices rising in December at 0.8% annualised, the fastest pace in over 9
years. Singapore official inflation, the CPI, is now running at a 25
year high at 4.4%, after December’s surprise 0.5% jump whilst in Hong
Kong, the value of new mortgages soared by 52% in 2007, to the highest
level in a decade. The Hang Seng eased by 0.3% over the week, with
Japan’s Nikkei Dow 225 lower by 1.7%.
On the currency front, the $US index slipped by 0.5% to 75.97 and the
Yen was lower by 0.7%, whilst it was a stronger week for the OZ and NZ
Dollar and the British pound. German 10 year bond yields were little
changed at 3.97% whilst Japanese JGB yields jumped by 8 bps to 1.47%. US
5 & 10 year Treasury yields fell by 2.1% and 1.8% respectively, ending
the week at 2.79% and 3.58%.
Within the Commodities Complex the crude oil price rose by 0.9% to $90.7
a barrel, whilst the price of Gold and Platinum soared to record highs
after power shortages in South Africa forced mining companies to shut
production. The $Gold price jumped by 3.3% to $911oz, whilst platinum
ended the week at $1680 oz on the futures market.
Next week sees the latest S&P/Case Shiller home price index and December
new home sales for the US, together with the December durable goods
orders number, whilst the UK announce the latest consumer credit and
mortgage approvals data. Euro-zone CPI for January is due for release
whilst the latest retail sales and housing starts are due out for Japan.
The main event, however, will be the “official” FOMC meeting, where many
are hoping for yet more interest rate cuts.
The “Great and the Good,” met up in Davos, Switzerland this week for the
annual World Economic Forum. Aside of watching the “hilarity” of the
World’s major company CEOs respond to a two choice question (that all
the cable channels appeared to be asking) on whether the US economy was
either slowing down or in recession (their answers varied with every
hourly turn of the markets) it was of interest to listen to Stephen
Roach, the Chief Economist of Morgan Stanley Asia. Roach, who was one of
the very few critics of sub prime lending before the bubble burst. To
the summit Roach said,” Last year in Davos, we had all the market makers
and apostles of the derivatives business sitting around saying 'Don't
worry, the beauty of [this] financial innovation is the ability to slice
& dice these products, and send them out in a remarkably diffuse way.'
But there was not one shred of data to support that. None. And yet, we
were conducting policy on the basis that the data had to fit the
ideology. Guess what: The presumption was dead wrong."
“It requires a very unusual mind to undertake an
analysis of the obvious”
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