Week ending 16th May 2008   

Aside of the latest fairy tale inflation data, US advance retail sales for April were as expected, at 0.2%.whilst April housing starts and building permits both came in higher than expected. It was rather gloomier for the provisional April University of Michigan consumer confidence reading, which fell to 59.5 versus the prior 62.6, a 28 year low. The stock market shrugged this off, together with the disappointing news from AIG ( a 2nd losing quarter) and higher losses from monoline insurers’, Ambac and MBIA, as the Dow ended higher by 1.9% over the week, with the S&P 500 and the Nasdaq gaining 2.7% and 3.4%.

Euro-Zone Q108 advance GDP data was higher than expected by analysts, at 0.7%, annualising at 2%, whereas the region’s trade balance fell into deficit in March, at -2.3BN Euro. As mentioned above, UK CPI for April was announced at 0.8%, or 3% year on year, both higher than anticipated, RICS, the Royal Institute of Chartered Surveyors, confirmed a continued deterioration of the UK housing market, with London seeing the most widespread price declines in 14 years. British Airways, which has endured a turbulent year to put it mildly, announced far better results than expected. The FTSE 100 index gained 1.6%, whilst the French CAC and the German DAX rose by 2.4% and 2.2% respectively.

Out East, April Japanese consumer confidence slipped, although Q108 provisional GDP came in at 0.8%, 3.3% annualised, which exceeded expectations. India’s inflation rate is at a 3 year high, at 7.8%, tame when measured against Vietnam, at 21.4%.The Nikkei jumped by 4.1% and the Hang Seng gained 2.2%.

On the currency front, the $US index declined by 0.3% to 72.8 after, with the Japanese Yen easing by 0.4% as did the Swiss Franc. The week’s gainers were the commodity linked currencies such as the South African Rand, the OZ and Canadian Dollar. German 10 year bond yields jumped by 18bps to 4.18% whilst Japanese JGB yields rose by 14bps to 1.69%. US Treasuries yields jumped, along with commodities, with the 5 and the 10 year higher by 5.2% and 2.2%, ending the week at 3.1% and 3.85% respectively.

Within the Commodities Complex the crude oil price rose marginally to another record high, at $126 a barrel, whilst the price of Gold added 1.6% to end the week at $900oz.

Next week will see the April PPI number the US, together with April existing home sales whereas the UK releases Q108 provisional GDP and April retail sales. April department store sales are due out for Japan, along with the May ZEW sentiment survey for Europe.

As the price of Oil continued with its record highs, President Bush went begging to the world's largest oil producer Saudi Arabia, a second visit to the Kingdom this year. "We do count on the Opec countries to keep adequate supplies out there, so the president will talk again with the king about that," said a White House spokeswoman. President Bush is well aware of his nation's reliance on imported black gold; as he put it in September 2000, "It is clear our nation is reliant upon big foreign oil. More and more of our imports come from overseas.” With many OPEC countries now discussing a possible break with the $US link, George W would be well advised to reconsider those phoney inflation numbers back home (assuming that he understands them in the first place that is.)

“A lie told often enough becomes the truth.”

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