US economic data this week included
September new home sales higher than expected, albeit that this came on
the back of still lower prices as evidenced by the S&P/Case Shiller
index, which showed that average house prices in August were -16.6% year
on year. Consumer confidence fell in October to the lowest level in 41
years as Q308 advance GDP contracted by 0.3% and Q308 consumer spending
fell for the first time in 17 years, shrinking at a 3.1% annualised
rate. As expected the FOMC slashed interest rates by 0.5% to 1% and are
now running out of bullets. The Dow jumped by 11.3%, whilst the S&P 500
and the Nasdaq were higher by 10.5% and 10.9% respectively in the
largest one week market gain since 1974.
Euro-Zone consumer confidence fell to -24 in October against the -20
expected, whilst CPI for the same month remained as expected, at 3.2%.
September unemployment for the zone remained static at 7.5%. The UK saw
lower house prices in October, as evidenced by the Nationwide data that
showed average house prices down by 14.6% year on year versus last
month’s -12.4%.Consumer credit in September for the UK fell to £0.3BN
versus the £1BN expected and the prior month’s £1.2BN. The FTSE 100
index advanced by 12.7% over the week and the French CAC was higher by
9.2%. Meanwhile the German DAX soared by 16% despite immense volatility
seen in the share price of Volkswagen, which no doubt cleaned out a few
Hedge Funds..
Out East, confidence among Japanese small and mid sized companies
dropped to a decade low and large retailer sales declined by 3.3% in
September against the 2.7% fall expected. Japan, China, India and Taiwan
all cut interest rates this week in an effort to stimulate their
economies. The Nikkei jumped by 12.1% over the week, reversing last
week’s 12% fall whilst the Hang Seng gained 10.7%.
The $US index eased by 0.9% to 85.67, whilst the big gainers were the
South African Rand, which jumped by 14.6% and the $OZ, higher by 7.3%.
German 10-year bund yields jumped by 13 bps to 3.875%, whilst Japanese
10-year “JGB” yields dipped by 2bps, ending the week at 1.47%. US
Treasury yields were higher on each trading day this week, no doubt
spooked by the projected doubling of the US Government’s borrowing needs
next year to $US2 trillion. 5 year yields ended the week higher by 8.4%
at 2.8%, whilst the 10 year yield climbed by 7.4%, ending the week at
3.97%.
Within the commodities complex the $crude oil price gained 5.7% ending
the week at $67.8 a barrel, whilst the price of $Gold eased by 1.66% to
$725oz.Commoditeis saw their worst monthly performance in 52 years.
Next week is all about employment for the US including the latest
Challenger job cuts and November non farm payrolls, whereas for Europe,
interest decisions will be made by the ECB and the Bank of England MPC.
The UK will also release October nationwide consumer confidence data and
September industrial production, whilst the Euro-Zone gets to see the
latest retail sales and PPI numbers.
The US Federal Reserve credit has expanded by $985BN over the past 7
weeks to an unprecedented $1.87Trillion and along with many other
Central Banks they have slashed interest rates in an effort to stimulate
lending, borrowing and consumption. The US Treasury, fresh after its
recent $700BN bailout package for the Banks (sorry, that’s $825BN
including Congresses “pork” demand to get the bill through) is now
talking with the FDIC about a possible $500BN in guarantees for troubled
mortgages to stem the record foreclosures. The Magic Circle could learn
a thing or two from this lot.
“Wonder is the beginning of understanding”
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