The theory goes that the first week of trading for the year is an indicator of what to expect for the rest of the year. If so, the outlook is not particularly positive for investors. The first trading week of 2008 in the US has had a distinctly downward flavour, with the DOW shedding four per cent.
At the Housing Economic Forum, Bernanke said that the US Federal Reserve was ready to take “substantive action” and that more rate cuts “may well be necessary”.
On Friday, Non-Farm Payroll numbers showed a paltry rise of 18,000 jobs. Market expectations were for 50,000 new employees to be added to the payrolls. The low number fueled concerns of a recession in the US. While there hasn’t been any hard data to confirm a recessionary state, consumer spending and price data will be closely watched in the coming week for hard evidence that a recession has or hasn’t taken hold.
Countrywide Financial was one of the most volatile stocks of the week. Rumors regarding bankruptcy triggered a substantial price fall. Then, on Thursday, reports that Bank of America was in talks with the troubled lender sent Countrywide shares soaring.
Gold futures were traded in Shanghai for the first time this week, with prices rising 10% in the first day of trading. Most traders remain bullish on gold, which is seen as a safe haven from inflation and instability and a hedge against oil and the dollar.
The Australian economy appears to be robust, with November Retail Trade numbers indicating that consumers are spending more than expected. Despite the interest rate rise in November, Retail Trade rose by 0.8%. Construction reached its strongest level in nine months, with building approvals up 8.9%. In a further sign of economic health, the Australian trade balance narrowed for the first time in four years – down to $2.25 billion on the strength of coal and iron ore exports to China.
In Japan, vehicle sales hit a 35-year low.
The Bank of England left interest rates unchanged at 5.5%, as expected.
The European Central bank left rates unchanged but signaled that future increases may be necessary to tame inflation.
Euro-Zone retail sales for November fell 0.5%, raising expectations for a rate cut by the European Central Bank.
British retailer Marks and Spencer reported its worst quarterly sales in more than two years, which raised concerns about lackluster consumer spending in England.
This was a week of defensive plays, with investors moving into defensive sectors such as healthcare and utilities. Utilities are regarded as defensive stocks because their high dividends can act as a buffer against a downturn in the market. With the problems in the credit market, however, wise investors will keep a close eye on debt levels, a particularly negative factor in current market conditions. In the coming week we’ll see some important data out of the US on consumer spending and prices. These numbers will be scrutinized to determine whether the US is indeed slowing down.
Happy investing and holiday season!
Head of Fundamental Analysis
HUBB Financial Group