Week ending 18th July 2008   

US economic data released this week included a fairly predictable rise in June “official” inflation, as CPI rose by 0.3% or 5% annualised versus the 4.2% in May. The June PPI figure, a measure of wholesale prices, jumped by 9.2%, the largest annual increase since June 1981. US regulator, the Securities and Exchange Commission (SEC) introduced a ban on the shorting of stocks, or at least at this stage the shorting of the Banking Sector, including, of course, Fannie & Freddie. After closing below the 11,000 level on the 15th July, for the first time in two years, the Dow reversed its downtrend of late, as investors’ bought into the hope that the Treasury and SEC “initiatives” would succeed. It jumped by 3.6% over the week, whilst the S&P 500 and the Nasdaq ended higher by 1.7% and 2% respectively.

Euro-Zone CPI for June was at 4% annualised versus the 3.7% figure in May, rising at its fastest pace in over 16 years, whilst the region’s latest ZEW economic confidence survey deteriorated to -63.7 from the previous -52.7.UK inflation in June, as measured by the CPI, was worse than forecast, at 3.8% annualised against the 3.3% number for May and at the fastest pace in 11 years. Meanwhile the UK’s budget deficit ballooned in June to its widest since records began in 1946. At £24.4BN it was 41% higher than this time last year and likely to force the current administration into more fudging of the rules. The FTSE 100 index gained 2.2%, with the French CAC and German DAX jumped by 4.9% and 3.7% respectively.

Out East, the Bank of Japan left interest rates at 0.5% as nationwide department store sales in June fell by 7.6% versus May’s -2.7%. Elsewhere Q208 GDP in China grew at 10.1%, down from 10.6% in Q1 and at the slowest pace since 2005. The Nikkei fell by 1.8% whilst the Hang Seng gave up 1.4%.

On the currency front, the $US index inched higher by 0.1% to 71.2, as the Euro and Swiss Franc eased by 0.7% and 0.4%. German 10-year bund yields surged by 14 bps to 4.57%, whilst Japanese 10-year “JGB” yields fell by 4 bps, ending the week at 1.56%. The US 5 year Treasury yield rose by 3.7% to 3.4% whilst the 10 year was higher by 3.6% at 4.08%.

Within the Commodities Complex the crude oil price rose had its largest one week fall ever, down by 11.2% to $129.5 a barrel whilst the price of Gold eased by 0.3%, ending the week at $958oz.

Next week sees the latest home sales and durable goods orders for the US and Q208 GDP and June retail sales for the UK. We also get to see the latest Euro-Zone money supply data and CPI numbers for Japan.

“The sprawling financial and economic crisis is leading to expansion of the Federal Reserve’s role, increasingly turning the central bank into a sort of all-purpose guarantor of the financial system” notes a recent article in the Washington Post. Rather a concern as the Fed’s Chairman, Bernanke, has now reversed his June assessment that the threat of an economic downturn had diminished. His judgement is looking about as impaired as his colleague, Hank Paulson, at the US Treasury, who in July 2007 (yes just 1 year ago) said the following.
 

“This is by far and away the strongest global economy I’ve seen in my business lifetime”

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