Week ending 7th March 2008   

US economic data continued to disappoint this week, despite the fact that vehicle sales held up well in February. Of more concern were the Q407 unit labour costs, which showed a 2.6% rise against the prior 2.1% and the unexpected 63,000 job losses in February, as evidenced by the non-farm payroll number. Also unsettling investors, perhaps, was the fact that the Fed has felt obliged to expand the bi-monthly auctions to $50BN each Either way, the Dow fell by 3% versus the S&P 500 fall of 2.8%, whilst the Nasdaq declined by 2.6%.

The Euro-Zone CPI estimate for February came in as expected, at 3.2%, whilst the region’s PPI number for January eased to 2.2% annualised, Meanwhile the ECB left interest rates on hold at 4% Turning to the UK, consumer confidence slipped in February to its lowest level in over three years and February average house prices eased. The Bank of England’s MPC also left interest rates on hold, at 5.25% The FTSE100 index lost 3.1%, whilst the French CAC and the German DAX gave up 3.6% and 3.5% respectively.

Out East, Japanese corporate investment fell at the fastest pace in 5 years, according to a Bloomberg article, whilst in OZ, its Central Bank hiked interest rates, the second time in four weeks, by ¼% to 7.25%. The Nikkei fell heavily by 6% outdone by the Hang Seng which slumped by 7.5%.

On the currency front, the $US index fell by 0.9% this week to 73, with the Swissie higher by 1.7% and the Euro by 1%. German 10 year bond yields declined by 10bps, ending the week at 3.79% whilst Japanese JGB yields were unchanged at 1.35%. US 5 year Treasury yields fell by a further 3.1%% to 2.43%, whilst the 10 year yield added 0.2%, ending the week at 3.54%.

Within the Commodities Complex the crude oil price jumped by a further 3.5%, ending the week at $105.2, whilst the price of Gold remained level, ending the week at $974oz, after reaching $995 during it.

Next week sees the latest trade data from the US, the UK and from Japan and inflation numbers from the US, the UK and the Euro-Zone. Japan also releases Q407 GDP information

According to Paul miller, an analyst with Friedman, Billings, Ramsey, the US mortgage market is short of capital, by $US1 Trillion at least. $11 trillion of mortgage debt is held up by $600BN of equity, which is a ratio of 19:1. This is just the mortgage market and one also has to consider the rafter of other consumer debt, such as auto-loans, credit cards and personal debt.

“Debt and lies are generally mixed together”

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