FYI | Sep 15 2007
By Greg Peel
China hiked interest rates for this fifth time this year on Friday, increasing both the deposit and lending rates by 27 basis points. The move followed a report that urban fixed asset investment had risen 26.7% between January and July.
British mortgage lender Northern Rock experienced a run on its funds on Friday as small depositors queued in the high streets to withdraw their savings. The scenes were reminiscent of a similar run on US lender Countrywide last month. The major UK lender had announced after trading on Thursday in London that it had approached the Bank of England for emergency funding to head off a liquidity crisis. Northern Rock shares closed 31% lower in Friday’s trading, initially dragging down the entire European banking sector, including the likes of Barclays, Deutsche Bank and UBS. Before the opening of Wall Street the FTSE 100 was down 2%.
Before the open, Merrill Lynch downgraded Dow components American Express and Intel from Buy to Neutral.
It was also announced that US August retail sales rose 0.3% at the headline – not an inspiring result, but made more grim once auto sales are removed to provide a more closely watched core figure. Sales ex-autos fell 0.4%, and it was recognised that US automakers have been on a discounting drive since posting significant second quarter losses.
The Dow responded by opening 100 points lower, but that was where the drama ended.
The University of Michigan announced the results of its September consumer confidence survey, and the market was surprised to learn that the index rose to 83.8 following July’s 83.4 and ahead of expectations for 83.5. The slide halted.
The Dow then began to track back steadily over the session, ultimately closing up 17 points. The S&P and Nasdaq also closed in slightly positive territory. This marked a 2.5% rise for the Dow over the week – the best week since April. Volume was once again, as described by one trader, anaemic.
Banking stocks in Europe were able to cover some lost ground, and the FTSE was contained to a 1.2% fall.
The US data flow continued over the session, with July business inventories tightening slightly, and August industrial production rising by a mere 0.2%. The current account deficit fell in the second quarter, from US$197.1bn to US$190.8bn, reflecting a lower dollar and increased exports.
The Fed has indicated it’s only interested in looking at timely data from here on, and the Michigan number is about as timely as they come. However, the increase in consumer sentiment was considered a positive, as was the poor August retail sales result for the simple reason as it’s more ammunition for a Fed rate cut. It would appear at the moment that all news is positive. Either that, or traders are taking every down-move opportunity to square up short positions ahead of the Tuesday Fed lottery.
The poorer economic data did manage to put a halt to the oil price rally however, although the near US$1 fall away from US$80/bbl would have reflected some overdue profit-taking. The US dollar closed mixed against other currencies, and despite the fall in oil gold was largely unchanged. Base metals were mostly stronger in London.
The SPI Overnight rose 7 points.
