Market Overview

Weekly Market Overview

Week ending 2nd May 2008

The Fed cut interest rates by a further Ľ% this week, to 2%, and two days later said that it would boost the amount of emergency reserves it supplies to U.S. banks to $150 billion in May, up from the $100 billion it supplied in April. The Fed took this action and several other moves to boost credit in coordination with the European Central Bank and the Swiss National Bank. The Fed has committed about $600 billion in loans to banks, an amount that represents perhaps half of all the distressed debt in the market, said Lehman Brothers, which helps moderate the risk that a struggling bank might have to auction off its investments to avoid bankruptcy.

Indices - Year to Date (2nd May 2008)

The S&P/Case-Shiller, a measure of home prices in 20 US metropolitan areas, fell by 12.7% in February from a year earlier, the most since the figures were first produced in 2001. The 10 city composite index dropped by 13.6%, again the worst since this index commenced in 1987, with the worst falls seen in Las Vegas and Miami at 23% and 22% respectively. Q108 advance GDP was announced as 0.6%, the same as Q407, whilst Q108 advance personal consumption (which represents 2/3rd of GDP, was 1% versus the past quarter’s 2.3%. The “official” unemployment rate for April fell to 5%, from 5.1% in March, whereas the job cuts announced by US employers’, according to Challenger, Gray & Christmas Inc, jumped by 27% in April year on year, somewhat at odds with the Labour Department. The Dow gained 1.3% over the week, with the S&P 500 higher by 1.2%, and the Nasdaq ahead by 2.2%.

Official unemployment within the Euro-Zone remained static in March, at 7.1%, whilst the regions estimated CPI for April eased. Meanwhile, both UK consumer credit and net lending on dwellings fell in March, whilst the two big mortgage lenders, Nationwide and HBOS, reported average house price falls of 1.1% and 1.3% respectively for April, the first year on year fall since 1996. Mervyn King, the Bank of England Governor, stated that the credit crunch was ending whilst the incumbent New Labour political party suffered its worst showing at the local elections in 40 years. The FTSE 100 index rose by 2%, whilst the French CAC and the German DAX gained 1.8% and 2.1% respectively.

Out East, according to the state owned Xinhua news agency, China’s urban jobless rate was 4%, whilst the National Bureau of Statistics reported that average urban wages rose by 18.3% in Q108 versus a year earlier. Hong Kong retail sales accelerated to 20% annualised in March, buoyed by lower interest rates and tax cuts. The Nikkei gained 1.3% and the Hang Seng 2.8%.

On the currency front, the $US index rallied by 1% to 73.5, with the Brazilian real enjoying a gain of 2.4%, whilst on the weaker side were the Swiss Franc, off by a further 2.2% and the Euro, which fell by 1.5%. German 10 year bond yields rose by 2bps to 4.2% whilst Japanese JGB yields gained a further 4bps to 1.64%. It was a quieter week for US Treasuries, with the 5 and the 10 year yield lower by 0.5%, to 3.16% to 3.85% respectively.

Within the Commodities Complex the crude oil price fell by 1.9% ending the week at $116 a barrel, whilst the price of Gold fell by 3.6% to $858oz.

Next week sees interest rate decisions from the ECB and the Bank of England’s MPC, together with March retail sales and PPI data for the Euro-Zone and April consumer confidence readings for the UK. The latest pending home sales figures and consumer credit numbers are due out for the US, together with the March trade balance.

US Treasury Secretary Paulson, was recently quoted to the effect that he thinks that the US economy is closer to the end of the economic downturn than the beginning, but returning to those Fed emergency reserves mentioned above, why did the Fed announce a further increase in their "Term Auction Facility" to $US 150 Billion a month on May 2? That "facility" has now almost quadrupled from the $US 40 Billion a month it started with in December 2007.

“Danger breeds best on too much confidence”

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Table of Indices

Exchng May-02 Week Chg Week % Mnth Chg Mnth % Year Chg Year % 2K Chng* 2000 % ------ -------- -------- ------ -------- ------ -------- ------ -------- ------ TSX 14280.28 176.41 1.3% 343.24 2.5% 447.22 3.2% 5866.53 69.7% IPC 30551.47 -457.55 -1.5% 270.06 0.9% 1014.64 3.4% 23421.59 328.5% BVSP 69366.30 4179.00 6.4% 1497.90 2.2% 5721.43 9.0% 52274.30 305.8% FTSE 6215.50 124.10 2.0% 128.20 2.1% -241.40 -3.7% -714.70 -10.3% CAC-40 5069.71 91.50 1.8% 73.17 1.5% -544.37 -9.7% -888.61 -14.9% DAX 7043.23 146.65 2.1% 94.41 1.4% -1024.09 -12.7% 85.09 1.2% MIB-30 35112.00 547.00 1.6% 572.00 1.7% -3773.00 -9.7% -7879.00 -18.3% Swiss 7665.80 156.32 2.1% 136.80 1.8% -818.66 -9.6% 95.70 1.3% Nikkei 14049.26 185.79 1.3% 282.40 2.1% -1258.52 -8.2% -4885.08 -25.8% HngSng26241.02 724.24 2.8% 485.67 1.9% -1571.63 -5.7% 9278.92 54.7% AllOrd 5760.40 101.70 1.8% 107.70 1.9% -660.60 -10.3% 2607.90 82.7%

* Change since 31/12/1999 
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Color Codes: Blue = Record close; Red = Big loser; Green = Big winner; Aqua = Record close with big gain

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