The big surprise of the week was the service sector ISM index. The numbers caught the market by surprise showing the worst result since 2002 when the US was last in recession. This once again sparked worries that the US was in, or was headed to recession and the market had its biggest drop for the week.
The economic news didn’t get any better throughout the week. Initial jobless claims, pending home sales and ICSC chain store sales were all lower than what the market expected.
One bright hope is that the stimulus package that the government is proposing will help kick start the US economy into recovery.
On the deal front, the biggest news was Microsoft’s $44.6B takeover proposal for Yahoo. The deal makes sense to many analysts but could be bad news for rival Google.
It was a quiet week in most Asian markets with China, Hong Kong, Singapore, South Korea and Taiwan closed for the Lunar New Year.
In Australia, official interest rates rose by 0.25% as expected to a more than decade high of 7%. The accompanying statement was mildly hawkish, leaving the door open to more rises later on in the year. Australia is the only major industrialised country still increasing interest rates.
The European Central Bank has left interest rates unchanged at 4% citing concerns about growth. The Bank of England cut interest rates to 5.25%.
German factory orders in December dropped by 2% which supports the view that the Eurozone is slowing.
BHP Billiton has formalized its offer for Rio Tinto offering 3.4 shares for every Rio share. A successful takeover would be the largest takeover in mining history. Rio Tinto’s board has rejected the takeover proposal saying that it fails to recognize the value of Rio Tinto’s assets. Chinalco and Alcoa now own 9% of Rio Tinto becoming major players in this deal.
BHP Billiton also came out with its 1st half results. It saw profit decrease slightly to US$6.02B. Analysts were expecting around $6.1B. The profit result saw a record performance from petroleum, iron ore and manganese.
The market is really moving sideways while the world waits to see whether there will be short term recovery in the US market. There was even an impact in the world of fashion this week with the strong Euro and weak US dollar seeing many fashion buyers missing the week in London.
The market is now eagerly waiting details of a part one of a stimulus package designed to give the US economy a boost. The ISM numbers really did take the market by surprise this week, even coming in worse than the manufacturing numbers.
Expect the market to continue to be undecided until there is clear direction as to which way the US economy is headed.
Head of Fundamental Analysis
HUBB Financial Group