For the US economy, house prices fell
in June by 16% year on year, although July existing and new home sales
surprised on the upside. There was good news during the week as August
consumer confidence rose to 56.9 versus the 51.9 seen in July, whilst
July durable goods orders also exceeded expectations at 1.3%. For the
bulls, the icing on the cake was the “amazing” provisional Q208 GDP
number, at 3.3% annualised, the fastest pace since Q307. The Dow fell by
0.7%, as did the S&P 500, whilst the Nasdaq fell by 2%.
Euro-Zone data was fairly grim, as evidence that mortgage lending has
collapsed within both Ireland and the UK, with house prices in the
former forecast to fall by at least 30%, according to stockbrokers
Goodbody and the latest Nationwide data showing UK average house prices
were lower by 10.5% on a year earlier and at the fastest pace since
1990. British sub prime mortgage arrears rose to a record in Q208 as
fixed rate deals came to an end. Elsewhere, the stock of new unsold
homes in France reached record levels in Q208, as Europe’s 2nd largest
economy shrank, whilst more than half of Spain’s real estate agents have
closed since the start of 2008. The FTSE 100 index gained 2.3%, whilst
the French CAC and German DAX were higher by 1.9% and 1.3% respectively.
Out East, Japan’s inflation rate exceeded 2% for the first time in over
a decade, whilst the value of new mortgages in Hong Kong “advanced” by
5.7% in July, according to a Bloomberg article. Elsewhere economic
growth has slowed in India and Thailand. The Nikkei jumped by 3.2%
whilst the Hang Seng gained 4.3%.
The $US index gained 0.7% to 77.3, whilst the Euro and British Pound
fell by 0.5% and 1.7% respectively. German 10-year bund yields declined
by 4 bps to 4.17%, whilst Japanese 10-year “JGB” yields were lower by
3.5 bps, ending the week at 1.405%. US Treasury yields eased, with 5
year yield lower by 1.4% to 3.09% and the 10 year yield down by 1.4%,
ending the week at 3.8%.
Within the Commodities Complex, the crude oil price rose by 0.7% to
$115.5 a barrel whilst the price of Gold gained 1%, ending the week at
$831oz.
Next week is a shortened trading week in the US, due to the Labor Day
holiday, with the main economic data due for release focussing on
employment, whilst within Europe there are interest rate decisions due
from the ECB and the Bank of England. The Euro-Zone also releases the
latest PPI, retail sales and GDP numbers, whilst the August vehicle
sales are seen for Japan.
The dog days of the northern hemisphere “summer” are ending so the low
trading volumes of late are set to increase. The major stock indices
have enjoyed a decent rally since mid July, despite the worsening
economic data emanating from all corners of the world. It’s a little
like the calm before the storm.
“All bubbles have a way of deflating in the end”
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