US economic data released included a
2.6% fall in June existing home sales, albeit that new home sales were
better than expected. In fact there were more positives in that durable
goods orders for June rose by a better than consensus 0.8% whilst the
forecast University of Michigan consumer confidence survey for July came
in at 61.2 versus the 56.4 expected. It was a roller coaster week for
financials, as they were hit by the sentiment surrounding the two bank
“failures” at the end of the previous week, then buoyed by the framework
of the Housing act, only then to be sold off as Pimco chief, Bill Gross,
warned of further large losses for the sector. The Dow fell by 1.1% over
the week, whilst the S&P 500 eased by 0.2%.The Nasdaq bucked the trend
by gaining 1.2%.
Euro-Zone mortgage lending has dropped to the lowest rate since the Euro
was introduced in 1999, no doubt affected by the sharp fall in business
and consumer confidence reported in Germany, France and Spain, with the
latter also announcing a jump in unemployment to 10.44%.The region’s M3
money supply for June was at 9.5% versus May’s 10.3%.UK Q208 advance GDP
was stated at 1.6% annualised, although retail sales in June fell by a
hefty 3.9%, the most since 1986.The European insurance sector took a
bashing, after Munich Re issued a profits warning. The FTSE 100 index
eased by 0.4%, whilst the French CAC and German DAX gained 1.8% and 0.9%
respectively.
Out East, a report by UBS suggests that Asian Governments, faced with
the highest inflation for a decade or more, are shelving billions of
dollars worth of landmark infrastructure projects and shifting funds to
more immediate economic assistance. Japan’s exports fell for the first
time in over 4 years as demand for cars and electronics cooled, whilst
demand for loans by Japanese companies fell to a four year low. It is a
similar story for Hong Kong, where exports fell have fallen for the
first time in 2 years. Despite this, The Nikkei had its best week for 5
months, rising by 4.2% whilst the Hang Seng added 4%.
On the currency front, the $US index added 0.9% to 72.9, as the Euro and
Swiss Franc eased by 1.4% and 1.8%. German 10-year bund yields rose by 3
bps to 4.6%, whilst Japanese 10-year “JGB” yields were higher by 1 bps,
ending the week at 1.57%. The US 5 year Treasury yield rose by 1.5% to
3.45% whilst the 10 year was higher by 0.75%, rising to 4.1%.
Within the Commodities Complex the crude oil price fell for a second
consecutive week, down by 4.8% to $123.3 a barrel and the price of Gold
gave up 2.2%, ending the week at $937oz. Over the past month, the crude
price is lower by 8.4% and the CRB commodities index down by 8.9%
Next week sees the latest home price index from Case/Shiller in the US
and the Nationwide in the UK. The Q208 advance GDP number is released
for the US, together with July employment data. Euro-Zone unemployment
numbers will be announced, as they will in Japan, whilst the former also
releases July CPI statistics.
Returning to the Housing Bill, the main reason behind it appeared to be
Treasury Secretary Paulson’s need to bail out Fannie and Freddie. By
increasing the US Federal debt ceiling by a whacking $800BN, the
Government (sorry the taxpayer) can buy any or all of F & F’s stock and
can inject any amount of capital into the two companies. This latest
rescue plan dwarfs anything which has taken place so far in the “credit
crunch" which is now approaching its first anniversary. It reality it
will likely only “buy a little time” whilst saddle ling future
generations of Americans with a very large debt burden. The Federal debt
limit, which passed the $US1 Trillion mark in 1982, has now soared to
$10.6Trillion, having doubled during George W’s term in office.
“A small debt produces a debtor; a large one, an
enemy”
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