US economic data released this week
included the April housing starts and building permits, which although
lower than forecast by analysts were greeted with some relief.
Meanwhile, according to Zillow.com 22% of all US home owners now owe
more than their properties are worth. General Motors headed ever closer
to bankruptcy this week, with suggestions being that it could be as
early as the month end. The Dow was level, whilst the S&P 500 gained
0.5% and the Nasdaq managed a 0.7% rise in what was a bumpy week.
Europe’s ongoing “dialogue” with Russia over energy supply saw an
interesting “twist” this week as Russia challenged the EU to assist
Ukraine pay its gas bills in order to prevent the disruption of future
supply, Meanwhile, Britain’s budget deficit for April was £8.5BN, the
highest monthly number since records began in 1993 and UK corporate
pensions now have a £220BN “hole.” Flag carrier, British Airways
announced its worst loss, at £400m, since the company was privatised.
The FTSE 100 index was higher by 0.4%, whilst the French CAC and the
German DAX gained 1.9% and 3.8% respectively.
Out East, Q109 GDP for Japan came in at a heart jarring 15.2%
contraction annualised and this was better than most analysts expected,
but at least April retail sales improved. Taiwan’s economy shrank by
10.4% in Q109, following the revised -8.6% for Q408. The Nikkei fell by
0.4%, whilst the Hang Seng rose by 1.6%.
The $US index was hit by 3.6% this week, to 80 and ironically the Pound
jumped by 4.8%, despite the S&P threat (see below). Other gainers
included the Swiss franc and the Euro, higher by 3.3% and 3.7%
respectively. Sovereign debt yields climbed further this week, including
German bund yields, which rose by 18 bps to 3.54% and the UK 10-year
gilt yield, which jumped by 19bps, ending the week at 3.72%. The US
Treasury 5 and 10 year yield soared by 11% and 10.4%, ending the week at
2.2% and 3.45% respectively. Year to date the 5 year yield has jumped by
42% and the 10 year by 54%.
Within the commodities complex the $crude oil price jumped by 8.2% to
$61.7 a barrel, whilst the $Gold price rose by 2.8% to $957oz, no doubt
assisted by the credit warnings on the US and the UK and by the
announcement by German fund manager Infos gmbh that it intends to launch
up to 500 ATMs dispersing the metal at a 30% premium to the spot price.
Next week is a shortened trading week for the US and for the UK, due to
public holidays on the Monday. The latest S&P/Case Shiller house price
guide is due out for the US and for the UK, the May Nationwide home
price survey. May consumer confidence numbers are also due out for both
Countries. Euro-Zone unemployment for April and May consumer confidence
data will also be released, whilst for Japan we await May CPI and April
retail spending numbers.
Last week we mentioned the growing concerns over soaring government debt
levels and this week Standards & Poor’s warned that the UK may lose its
triple A credit rating, whilst Pimco’s Bill Gross warned of a similar
outcome for US treasuries. Meanwhile “fast track” legislation looks set
to curb credit card fees and to ban under 21 year olds from having them.
Whilst the initial reaction from many parents may be “thank goodness,”
we are intrigued by the irony of the timing. On the one hand government
has spent trillions of taxpayers’ money on “saving” the banking system,
endeavouring to increase credit flows, whilst it now is likely to slash
20% or more of credit card (banks’) turnover with the inevitable knock
on effect to both banks and retailers.
“The
Laws of Unintended Consequences.”
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