US Markets closed the week with the DOW just 0.7% away from record highs, though recent data indicates that consumer confidence fell to a two-year low in September. US existing home sales fell to a five-year low, while new home sales fell to a 795,000 annual unit rate in August – the lowest level in 7 years – and showed the largest year-over-year drop in prices in nearly 37 years. These factors bolster arguments that the Federal Reserve should continue to lower interest rates. A drop in weekly jobless claims suggests that the labour market is holding up despite the housing slump.
Second quarter GDP growth was revised from 4% down to 3.8%. The flood of negative data caused further damage to the greenback, which was trading at historic lows this week.
The Japanese exchange was closed Monday for a holiday; the Korean and Taiwanese markets closed for a three-day day holiday Monday to Wednesday.
In the third quarter, South Korean consumer confidence hit a five-year high, indicating shoppers may step up spending and spur economic growth. The consumer sentiment index increased to 112 in the third quarter from 108 in the second, the Bank of Korea reported. A reading higher than 100 indicates that optimists outnumber pessimists.
China raised interest rates on some mortgages and increased minimum down payments in an effort to cool property prices, which jumped almost 10 % last month. The rate on loans for second homes and on commercial real estate was pushed to at least 1.1 times ``benchmark'' rates. Buyers will now have to pay at least 40% of a property's value as down payment, up from 30%.
The Australian share market had a stellar run with new record highs set every day this week. Mining stocks were behind the rise, with record performances from BHP Billiton, Rio Tinto and Fortescue Metals.
The focus is still on Northern Rock. A Financial Times article reported that the company had borrowed another 5 billion pounds from the Bank of England. Its share price did well this week, bouncing back on takeover speculation. Hedge Fund RAB Capital increased its stake in Northern Rock, further fuelling takeover talk.
British Airways has jumped ship. After decades of loyalty to Boeing, it will switch to the new Airbus superjumbo with a mixed plane order worth up to 4 billion pounds.
It appears that the 50-basis-point US interest rate cut was successful in injecting confidence back into markets. Despite weak economic data, investors drove markets up close to new highs in the US, to new highs in Australia, and to two-month highs in Japan and Korea. Investors seem to have become more comfortable with risk.
The housing slump is still deepening and the credit problems aren’t over, but investors are developing some immunity to bad news. As the past few weeks have shown, however, another economic shock could incite another mood change.
Head of Fundamental Analysis
HUBB Financial Group