It was a bad week for US economic data
as new home sales in December collapsed by 14.7% versus the -2.5%
expected by analysts, whilst the latest S&P/Case Shiller home price
index showed an 18.18% fall year on year to end November 2008. Durable
goods orders fell by 2.6% in December and the advance Q408 GDP number
came in at -3.8%. The Dow fell by 1%, whilst the S&P 500 gave up 0.7%
and the Nasdaq remained even. The S&P 500 had its worst January on
record, falling by 8.1% with the KBW Banking Sector Index collapsing by
35% over the month.
Within the Euro-Zone, social unrest is rising as France was bought to a
standstill as its 8 largest unions demonstrated about the economic
downturn and rising unemployment. This has been echoed in both Germany
and the UK, whilst in Iceland demonstrations have forced the Government
to resign. This week’s economic data will add to the mood, as Euro –
Zone unemployment for December increased to 8% versus November’s 7.8%,
whilst in the UK, January house prices fell by 1.3%, according to the
Nationwide, and UK home loan approvals in December were 47% lower than a
year earlier. The FTSE 100 index gained 2.4%, whilst the French CAC and
the German DAX were higher by 4.4% and 3.8% respectively.
Out East it was much the same, as Japan’s jobless rate for December
jumped to 4.4% against November’s 3.9% and January retail sales were
lower than expected, posting their largest decline in 4 years. Elsewhere
New Zealand’s Central Bank cut interest rates by 1.5% to a record low of
3.5%. The Nikkei rose by 3.2% whilst the Hang Seng jumped by 5.6% in a
holiday shortened week.
The $US index gained 0.4% to 85.89, with the British Pound gaining 5.1%
after last week’s 6.3% fall. On the downside were the $OZ and the $Kiwi,
which fell by 3% and 4% respectively. German 10-year bund yields rose by
6 bps to 3.29%, whilst Japanese 10-year “JGB” yields were also higher by
6 bps, ending the week at 1.29%. US Treasury 5 & 10 year yields surged
once again, by 14.8% and 8.5% respectively, ending the week at 1.87%,
and 2.84%.
Within the commodities complex the $crude oil price reversed last week’s
9.2% rise, falling by 10.3% at $41.7 a barrel, with the price of $Gold
higher by 3.4%, ending the week at $928oz.
Next week sees the latest vehicle sales for the US and Japan and
interest rate decisions due out for the UK and the Euro-Zone. The latest
PPI and retail sales data is also due to be released for the Euro-Zone
but by far the most important information to be released will be the
latest US employment data, including non farm payrolls.
Writing in the Financial Times, George Soros, the billionaire U.S.
investor, said, “President Obama is confronted with challenges even more
daunting than those that faced Franklin D. Roosevelt in 1933. Soros went
on to say,” total credit outstanding at the onset of the crash last year
was 365%, compared with 260% in 1932, and it’s certain to reach 500%.”
For the record, yours truly wrote an investment commentary on US
Debt/GDP in November 2004, entitled “History repeats, "which warned of a
debt deflation (call it a credit crunch if you prefer). For our esteemed
leaders to claim that “no one saw this coming", is pure fantasy and more
indicative of abysmal financial forecasting.
“If you have to forecast, forecast often”
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