Week ending 19th June 2009   

This week the tally of US bank failures rose to 40, year to date, as banks in North Carolina, Georgia and Kansas, with combined assets of $US1.5BN, were seized by the regulators at a cost to the FIDC (read taxpayer) of $363m. In Q109 the FDIC classified 305 banks as “problem” institutions, a 21% jump from the previous quarter and at the highest level since 1993.

US economic data released this week included May housing starts, which came in ahead of expectations and inflation numbers, which give rise for concern. Whilst May PPI was at 0.2% the annualised figure was at -5% and CPI was -1.3% year on year. The Dow fell by 2.95%, whilst the S&P 500 and the Nasdaq were lower by 2.6% and 1.7% respectively.

Euro-Zone Q109 employment fell by 1.2% year on year or about 1.22 million jobs, the largest decline since records began in 1995, whilst CPI in May came in at 0% year on year. Irish retail sales for April fell by 17% whilst the May figure for the UK was -1.6% versus a year ago. The UK PSBR jumped to £18.8BN, in May, versus the £16BN expected and was a large jump from the March figure of £5.2BN, whilst May CPI was at 2.2%. The FTSE 100 index fell by 2.2 over the week, whilst the French CAC and the German DAX were lower by 3.2% and 4.5% respectively.

Out East, Japanese interest rate policy was left on hold, at 0.1%, by the Bank of Japan, as Machine toll orders in May collapsed by 79.3% year on year. Elsewhere, the Sovereign wealth funds of S.Korea, Malaysia and Australia have signed agreements to share information and “expand corporation” in respect of investment opportunities. The Nikkei lost 3.5%, whilst the Hang Seng fell by 5.1%.

The $US index added 0.1% this week, to 80.31, with gainers including the Yen and the Pound, which rose by 2.3% and 0.4% respectively. Sovereign debt yields outside of the US fell this week, with the German bund yield lower by 13 bps to 3.5% and the UK 10-year gilt yield, down by 16bps, ending the week at 3.81%. The US Treasury 5 yield rose by 0.7% to 2.8% whilst the 10 year yield remained even at 3.79%.

Within the commodities complex, the $crude oil price fell by 3.75% to $70 a barrel, whilst the $Gold price fell by 0.5%, ending the week at $934oz.

Next week sees the latest home sales for the US and house prices and mortgage approvals for the UK. May durable goods orders and personal income/expenditure data is also due out for the US, together with the May trade balance and CPI numbers for Japan. It’s a light week for EU economic data but returning to the US, we await the FOMC meeting on interest rate policy.

Whereas last week the G8 Finance Ministers were at pains to reassure everybody that their massive dive into debt was temporary and that they were making plans to reduce obscene deficits down to more normal levels, this week they were planning to re-regulate their financial systems so as to ensure that the events of the past two years never happen again. Despite the fact that the more they regulate, the worse things get, the US administration is considering a draconian emulation of George W’s “Department of homeland security” with a “department of financial security.” Do they ever learn anything?

“The profusion of Government must undoubtedly have retarded natural progress, it has not been able to stop it. ”

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