US economic data released this week
showed that Q108 economic growth came in at 0.9%, higher than the
earlier expectations whilst April durable goods orders fell by 0.5%
versus the 1.1% decline expected. Jobless claims are at a 4 year high
and looks set to go higher still as Ford became the latest company to
announce involuntary lay offs amongst its salaried staff. Consumer
confidence in May fell to its lowest level in 28 years, no doubt
explained by the S&P Case/Shiller Home Price Index, which showed a 14.4%
decline from year ago levels to a new record low. Also, US Consumer
Confidence plunged to its lowest level in 16 years in May. The Dow rose
by 1.3% over the week, with the S&P 500 and the Nasdaq ending higher by
1.8% and 3.2% respectively.
The Euro-Zone inflation rate rose to 3.6 percent, matching a 16-year
high, from 3.3 percent in April, whilst the regions unemployment level
remained at a record low of 7.1%. Similar to their US counterpart, UK
consumer confidence dropped in May to the lowest level since Margaret
Thatcher was ousted from office in 1990 as UK house prices fell by 2.5%
last month, according to the latest Nationwide survey, bringing in the
largest year on year fall since 1992. The FTSE 100 index lost 0.6%,
against gains for the French CAC of 1.6% and 2.2% for the German DAX.
Out East, Japan’s unemployment rate rose to 4.0% from 3.8% in March,
states the statistics bureau, whilst household spending dropped 2.7
percent in April, the biggest drop in 19 months, with consumer
confidence at a six-year low. Elsewhere Vietnam’s inflation rate in May
was 25.2% on an annual basis, up from 21.4% in April and 14.1% in
January, prompting higher interest rates to come. The Nikkei rose by
2.3% whilst the Hang Seng lost 0.7%.
On the currency front, the $US index added 1.3% to 72.9, whilst the Yen
and the Euro fell by 2% and 1.4% respectively. German 10-year bund
yields jumped 14 bps to a 7-month high 4.40% and Japanese 10-year “JGB”
yields added 1.5 bps to a 9-month high at 1.75%. US 5 and 10 year
Treasury yields over the week by 9.2% and 5.6% respectively, ending the
week at 3.41% and 4.05%.
Within the Commodities Complex the crude oil price jumped by 4.9% to
another record high, at $132 a barrel, whilst the price of Gold added
2.9% to end the week at $926oz.
Next week will see the May US employment report, Challenger job cuts for
May, together with the April consumer credit numbers. For the UK and the
Euro-Zone, their Central Banks review interest rate policy, whereas
Japan announces the latest vehicle sales and broad liquidity data.
Inflation hedges, like the rising gold price and the rocketing crude oil
price are evidence enough to suggest that inflation will continue to
march ever higher, whilst the recent Conference Board report also
revealed that inflationary expectations have risen to a new, all-time
high, alongside a record-breaking number of Americans filing for
government stamps due to “rising food costs.” 10 year Sovereign debt
yields have also been spooked higher, so inflationary trends must
increase say the soothsayers. Funny that the $Gold price peaked during
March and the Reuters/Jefferies CRB Index appears to have topped in late
April, with the Oil price following suit a week later. Perhaps these,
together with the rising bond yields are actually pointing towards a
massive debt deflation, where investors’ into even Government debt are
demanding a higher compensation, for the increasing risk?
“That Government is best which governs the
least”
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