Week ending 29th February 2008   

It was a dire week for US economic data as January home sales continued to contract, existing by -0.4% and new by -2.6%, whilst January durable goods orders fell by 5.3%. The December S&P/Case Shiller house price index shows a -9.1% year on year versus the prior -7.7%.Stocks bounced mid-week, as the “independent” credit agency, Standard and Poors,, affirmed the AAA credit ratings on the beleaguered monooline insurers’ MBIA and AMBAC, but any euphoria was quickly reversed as the Government sponsored mortgage financiers’, Freddie and Fannie, reported combined record Q407 losses of $US6BN. The Dow fell by 0.9% versus the S&P 500 loss of 1.7%, whilst the Nasdaq declined by 1.4%.

The Euro-Zone CPI for January came in as expected, at 3.2%, whilst the region’s M3 money supply expanded at an annualised rate of 11.5%.The Official EU unemployment rate fell to 7.1%. Turning to the UK, Q407 GDP fell to 0.6%, as the current account deficit widened to 5.7% of GDP, the highest of any G7 Nation. One week ahead of the Bank of England MPC decision on interest rates, the latest M4 money supply statstistics show an increase to 13.1% year on year from the prior 12.9% The FTSE100 index remained level over the week, whilst the French CAC eased by 0.7%. and the German DAX gave up 0.9%.

Out East, Singapore’s inflation rate advance to 6.6% annualised the fastest pace since 1982, Meanwhile Aussie household debt has increased to 200% of income, nearly 3 times higher than the 70% level of 1991. The Nikkei rose by 0.8% whilst the Hang Seng jumped by an impressive 4.4%.

On the currency front, the $US index fell by 2.4% this week to a new all time low at 73.7, unnerved by Benanke’s in ferment of further rate cuts,whilst the Swissie and yen jumped by 4% each. German 10 year bond yields declined by 11bps, ending the week at 3.89% whilst Japanese JGB yields sank by 9.5bps, closing at 1.35%. US 5 year Treasury yields collapsed by a whooping 10.4%% to 2.5%, whilst the 10 year yield fell by 6.8%, ending the week at 3.53%.

Within the Commodities Complex the crude oil price jumped by a further 3%, settling above the $100 a barrel level at $101.8, whilst the price of Gold gained 2.9%, ending the week at $975oz.

Next week sees the latest US employment statistics and February vehcle sales. The ECB and the Bank of England MPC announce any interest rate changes and for Japan, we see the latest machine tool orders and leading economic indicators.

As UBS AG announced that financial firms are likely to lose at least $600BN from the financial crisis versus the $160BN so far, Peloton Partners, one of London’s most successful hedge funds, has imploded, with £1BN of equity wiped out. The 4 times leveraged ABS fund, which invested in mortgaged backed securities had been forced to sell assets at a 30% discount to meet cash calls from its bankers. It wont be the last.

“Leveraged Debt is beneficial in Bull Markets…But?”

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