Week ending 15th May 2009   

US economic data released this week included the March trade deficit, which was at a better than expected -$US27.6BN. April industrial production, at -0.5%, was also considered an improvement on forecasts, but the not so good were those for April PPI and retail sales. The former fell by 3.7% annualised, whilst advance retail sales were far worse than expectations, at -0.4%. Two of the “big 3” US automakers, Chrysler and GM, announced swinging cuts to their respective dealer networks and with GM bonds now selling at 4.4 cents on the Dollar, the company appears likely to follow Chrysler into bankruptcy. The Dow and the S&P 500 fell by 3.6% and 5% respectively, whilst the Nasdaq was lower by 3.4%.

Europe’s economy contracted by 4.6% annualised in Q109, the fastest pace in 13 years, with Spain the standout as its economy collapsed by the most in four decades. March industrial production for the Euro-Zone fell by 20% and Spain’s unemployment rate soared towards 20%. UK unemployment rose to 7.1% in March from February’s 6.7% and March industrial production fell by 12.4%.The FTSE 100 index was lower by 2.6%, whilst the French CAC and the German DAX fell by 4.3% and 3.6%.

Out East, the OZ government looks set to sell twice as much debt as last year and at $A60BN has grown a tad than the $A5BN issued in 2007/8. Elsewhere, Q109 GDP for Hong Kong fell by 4.3%, the worst contraction since 1990. The Nikkei fell by 1.8%, whilst the Hang Seng gave up 3.5%.

The $US index gained 0.6% to 83 and the Yen jumped by 3.5%, whilst decliners included the Swiss franc and the Euro, lower by 1.5% and 1% respectively. Sovereign debt yields reversed this week, including German bund yields, which fell by 8 bps to 3.36% and the Japanese 10-year “JGB” yield, which eased by 2bps, ending the week at 1.42%. The US Treasury 5 and 10 year yield were lower this week by 7.6% and 5.2%, ending it at 1.98% and 3.12% respectively

Within the commodities complex the $crude oil price fell by 4.6% to $57 a barrel, whilst the $Gold price rose by 1.6% to $916oz, its highest close in two months.

Next week sees the release of the latest housing starts for the US whilst Q109 GDP figures are due for Japan and for the UK. April CPI, PSBR and M4 money supply numbers are also due for the UK, whilst consumer confidence data for Japan will be announced and the ZEW economic sentiment indicator for the Euro-Zone.

Whilst the central banks and their political masters have managed to hold overnight rates at 40 year artificial lows, the markets are “sniffing” growing problems in the funding problems of not just individuals and corporates, but government also. Credit default insurance on US government debt now costs more than on debt issued by McDonalds.

“By definition, a government has no conscience. Sometimes it has a policy, but nothing more.”

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