Week ending 4th June 2010 

US economic data released this week showed that April pending home sales rose by a better than expected 6% and by 24% year on year. May vehicle sales were 9.14m units, again higher than forecast. However despite the “official” unemployment rate falling to 9.7% from last month’s 9.9%, non farm payrolls only expanded by 431,000 against the 536,000 forecast and it would appear that public versus private sector jobs are growing at a 10 to 1 pace, which is clearly unsustainable. The Dow fell by 3.2%, whilst the S&P 500 and the NASDAQ ending lower by 3.4% and 3.6% respectively.

Euro-Zone consumer confidence in May remained level with that of April, whilst the estimated CPI for the same month rose to 1.6% against the prior 1.5% figure. April retail sales fell by 1.5% versus the -0.1% expected, with German retail sales by 3.1% annualised against the previous month’s 3.7% growth. UK consumer credit in April fell by £0.1BN against the £3.3BN forecast and whilst the Nationwide house price data for May showed that average prices rose by 0.5% and by 9.8% year on year, The HBOS data, however, showed a 0.4% fall. The FTSE 100 index lost 1.2%, whilst the French CAC and the German DAX were lower by 1.7% and 0.1% respectively.

Out East, Japan’s housing starts for April were lower than expected, as were provisional figures for industrial production in April, which came in at 1.3% against the 2.5% forecast. Elsewhere, OZ consumer credit grew by 0.2% in April versus the 0.5% that economists projected. The Nikkei fell by 1.4% whilst the Hang Seng remained level.

The $US index jumped by 2% to 88.2, with the British pound managing a 0.2% rise. Losers included the $OZ and the Euro, lower by 2.8% and 2.4% respectively. Sovereign debt yields fell, spooked by worries over Hungary’s ability to service its debts and the disappointing US job figures. German bund yields sank by 10bps to a record low of 2.58% and UK 10-year yields fell by 7bps to 3.51%. Japanese JGB yields, meanwhile, added 2bps, finishing the week at 1.265%.US Treasury yields collapsed, with the 5 and 10 year lower by 9.4% and 4.28% respectively, ending the week at 1.98% and 3.2%.

Within the commodities complex the $crude oil price fell by 3.4% to $71.5 a barrel whilst in the precious metals complex there was a divergence, as the price of $Gold saw a 0.5% rise to $1220oz whilst Silver fell by 5%.

Next week sees the latest trade data and consumer confidence numbers for the US, the UK and for Japan, plus the most recent consumer credit demand for the US and bank lending for Japan. The UK and Euro-zone central banks’ announce any interest rate change, whilst Q110 GDP is forecast for Japan.

Banks on both sides of the Atlantic have been blamed for hoarding taxpayer cash instead of lending it to needy small businesses, the backbone of employment. Whilst Obama has been the chief “loan ranger,” suggesting even more taxpayer money being injected to banks, Britain’s new business secretary, Vince Cable, wants to enforce the lending targets to which UK banks agreed as part of the financial rescue. Meanwhile the Federal Reserve Bank of Atlanta has done a survey of its region and surprise, surprise, it found that only 11% of respondents cited an unwillingness of banks to lend as an obstacle to obtaining credit. It has far more to do with weak sales, existing large debts and a preference to reduce them, supporting the weak demand theory stated within our various reports, a classic symptom of DE-flation.

“You can lead a horse to water but cannot make it drink"