Week ending 27th February 2009   

US economic data released this week included the December S&P/Case Shiller home price survey, which fell by 2.5% and brought the 20 city index year on year return to -18.6%, slightly worse than expected. January existing home sales fell by a higher than expected 5.3%, whilst new home sales “fell off a cliff,” collapsing by 10.2% for the month, albeit that California saw doubled home sales from a year earlier as bargain hunters took advantage of the 41% fall in average home prices seen in that state. Just to show that it’s been an “equal opportunity” bear market thus far, US office sales in January are 86% lower than a year earlier. Durable goods orders for January fell by 5.2%, double than that forecast by analysts and February consumer confidence fell to 25 versus the 35 expected. To finish off what has been a miserable month of data, US Q408 GDP shrank by an annualised 6.2% versus the earlier estimate of -3.8% and the worse contraction since 1982. The Dow fell by 4.1% over the week, with the S&P 500 and the Nasdaq lower by 4.5% and 4.4% respectively. It was the worst February on record for US stocks.

The Euro-Zone’s unemployment rate in January rose to 8.2%, higher than forecast whilst the region’s CPI for the same month came in lower than expected at 1.6%annualised.Europe’s largest economy, Germany, saw exports slump in the final quarter of 2009 as its economy contract by the most in 22 years. UK Q408 GDP fell by 1.5%, despite Government spending being twice that forecast and February UK house prices, according to the nationwide, fell by 1.8% and by -17.6% year on year. The FTSE 100 index ended lower by 1.5%, whilst the French CAC and the German DAX were down by 1.8% and 4.25% respectively.

Out East Japan’s exports in January plunged by 46% and for Hong Kong they were lower by 22%, the worst in 50 years. Elsewhere, Taiwan exports in January fell by a record 42% and Singapore’s Q408 GDP shrank by an annualised 16.4%, the worst in over 33 years. The Nikkei managed a gain of 2% whilst the Hang Seng rose by 0.9%.

The $US index rose by 1.8% to 88.1, whilst fallers included the Yen, lower by 4.3% and the Euro, lower by 1.3%. German 10-year bund yields rose by 10 bps to 3.11%, whilst Japanese 10-year “JGB” yields were little changed, ending the week at 1.24%. US Treasury 5 & 10 year yields saw a market jump of 12.4% and 9.7% respectively, ending the week at 2.02%, and 3.04%.

Within the commodities complex the $crude oil price jumped by 11.2% to $44.5 a barrel, whilst the price of $Gold fell by 5.8%, ending the week at $944oz. After a volatile month, Oil has gained 7.4% and Gold 1.5%.

Next week sees the latest mortgage delinquencies for the US and vehicles sales and employment data for February. There are interest rate decisions to be made for both the UK and for the Euro-Zone. Europe also releases Q408 GDP numbers and CPI estimates for February, whilst the UK announces the latest PPI and consumer confidence data. Out East, Japan releases February vehicle sales.

President Obama unveiled his first budget proposal this week, which at $US3.55 Trillion for 2010 certainly marks the return of BIG Government. The budget deficit for this year is put at $1.75 Trillion, or 12.3% of GDP. Somehow he managed to keep a straight face as he promised to half the budget deficit over the next 5 years, pledging “a new era of responsibility.” Meanwhile, American citizens, who have incurred record domestic stock and real estate losses totalling $13.5 Trillion, are piling back into US Government debt after lowering their exposure to Treasuries in 9 of the past 11 years. Any guesses as to the next bubble anyone?

“The art of Government is to make two thirds of a nation pay all it possibly can pay for the benefit of the other third”

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