The US stock market weathered a volatile week that seesawed between optimism and dismay. Economic news was mixed, with signs that the housing market may be improving but that the job market may be in decline.
Goldman Sachs issued favorable news, indicating that it expects no further write downs due to the subprime crisis. The world’s largest retailer, Wal-Mart, reported good earnings due to pre-holiday discounting.
Pending home sales rose unexpectedly by 0.2% in September, the first gain in three months and a positive development in light of the forecasted 2% fall.
Jobless claims rose sharply to 339,000, sparking concern about weakness in the labor market.
Manufacturing numbers this week were much better than expected due to weakness in the greenback.
Inflation was in line with expectations of a 0.3% rise month on month, bringing the CPI figure to 3.5% for the year.
Asian share markets continue to be driven by volatility in US markets. Japan’s share market fell to its lowest level for the year. In Australia, the focus was mining stocks. A bid from BHP Billiton for Rio Tinto sparked speculation that there could be more consolidation in the sector.
With inflation in China continuing to increase in October, interest rates may be raised imminently for the sixth time this year.
Japan’s economy grew 0.6% in the July quarter, beating forecasts for a 0.4% rise. An increase in the price of raw materials brought Japan’s wholesale inflation up 2.4% from a year earlier, slightly above forecasts of 2.3%. The Bank of Japan kept interest rates unchanged as expected at 0.5%
In the wake of the Reserve Bank of Australia’s quarterly statement, money markets priced in an 18% chance of an interest rate rise in December, down from an earlier 24%. Most economists agree that there will be at least one more interest rate rise in the next six months.
As of August, average weekly wages in Australia were the highest in six months. The increase of 4.9% was well above the Reserve Bank’s comfort level of 4.5%.
In October, consumer spending in England dropped for the first time in six months on a decline in food and clothing sales. Consumer prices came in line with expectations at a 2.6% annualized rate of growth.
The French are also worried, with the Bank of France stating that inflation vigilance is warranted. According to the ECB monthly report, the Central Bank “stands ready to counter upside risks to price stability as required by our mandate.”
Volatility in the US and repercussions in global markets continued this week. Economic data is being closely watched for signs that the US problems have bottomed, but there have been no clear signals for the market as of yet. The market is swinging between optimism and doom with the DOW seeing tripled digit moves up and down this week. Most market watchers agree that the problems in the financial sector are not yet over.
Head of Fundamental Analysis
HUBB Financial Group