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Monday, June 16, 2008

Weekly Briefing

After a rather turbulent week markets ended on a positive note. US markets benefited from a better than expected inflation outlook, following Fridays CPI numbers. The majority of inflation increases were due directly and indirectly to energy costs, so markets were thankful for the fact that oil didnt finish the week on a new record high.
The Energy heavy FTSE trudged behind its European peers and US markets, as oil stocks took a back seat, and domestic inflation fears dampened the buyers enthusiasm. Rumours hit the newswires that UK inflation will be double the expected rate. This news will make it easy for the BOE to make the decision to raise interest rates at the next central bank meeting. This is yet another piece of negative news for the FTSE, which has spent most of the year in the red. The CPI number released next week could add further negative pressure on the UK benchmark index.
Underwriters of the HBOS rights issue breathed a huge sigh of relief as the bank rose above the discount level, which would have caused them to step in and take up the issue at a bad price. The UK banking stocks finished down on the week, but managed to close significantly above the lows as bargain hunters entered the market. At one stage Barclays dipped below £3.00 a share for the first time in a decade before closing the week at £3.23.
Oil dropped slightly at the end of the week as comments from Saudi Arabia reassured investors that supply would be increased. However, this pullback has to be put into the perspective of the rapid price advance over the last few weeks. Just a few weeks ago $133 a barrel would have set headlines blazing; now it is a welcome pullback, with oil still well within the $130 to $139 trading range of the last few days.
On the currency markets, the Euro finished the week well down against the Pound and the Dollar. Sellers were out in force after Irish voters rejected the EU reform treaty by a narrow margin. The Lisbon treaty has to be ratified by every country before coming into effect. Every other country elected to allow their national governments to ratify the treaty, but Irelands democratic vote has thrown the treaty and potentially further EU integration into disarray. With increasing divisions within the Eurozone over rates policy, the single currencies detractors were out in force.
Next week starts off with some heavy data on both sides of the Atlantic, but ends on a quiet note with little data released on Friday. Monday sees the release of Core EU CPI, which could impact on the Euros recent declines. Around midday the US release of TIC net long term transactions will also impact on global currency markets. Tuesday sees the release of a raft of upper and middle tier US data. Top of the list is the Housing Starts and PPI data. On Wednesday we have the release of the minutes from the last MPC meeting. Considering recent developments, these minutes may be slightly obsolete, but will still be scoured for hints of future policy directions. Thursday brings UK retail sales and US unemployment claims.
Although markets ended the week on a positive note, European indices still ended well down. US inflation is still sky high. Everything from hospital services to education is costing more. To make matters worse, recent US home foreclosure data has indicated that one in every 483 US households experienced a foreclosure filing during the Month of May. In some parts of California, this figure stands at an incredible 1 in 66 houses. ECB president Trichet recently commented that much depends on the trajectory of the US housing market. If he is correct then the feared global depression may be more real than people are prepared to believe.
The FTSEs high from last year was 6754; roughly 200 points shy of its peak in 1999. It could be argued that it will be a long time before these levels are seen again. A No Touch bet on the FTSE not to touch 6800 at any time during the next 6 months (180 days) could return 18%.