Better than expected results from Citigroup, JP Morgan and Wells Fargo initially saw the US stockmarket off to a good start this week. The White House moved to drop its veto against the housing bill. In the case that things do get worse for Fannie and/or Freddie, the Treasury will need the power to bail them out before Congress goes to recess in September.
Existing home sales fell in June, down 16% compared to a year earlier, to its lowest point in a decade. Resales were down 2.6% and the median home price dropped by 6.1% when compared to last year. These numbers indicate that the US housing market has not yet bottomed out. As long as house prices are continuing to go down, noone can say how much the banks are going to lose and how long the downturn is going to last.
A consequence of the very high oil prices this year, is that automakers have remained under pressure. Ford announced the biggest quarterly loss ever with an $8.7 billion loss recorded for the 2nd quarter.
The Reserve Bank of New Zealand unexpectedly lowered interest rates for the first time in 5 years as growth concerns outweighed inflation concerns and signaled that more rate cuts may be on the cards. Official interest rates in New Zealand fell from 8.25% to 8%.
Inflation in Australia accelerated in the 2nd quarter by 1.5% up to 4.5%. Despite the rise in consumer inflation, the Reserve Bank has indicated that rates will likely remain on hold with a slowdown in the domestic economy expected to drive down inflation.
In England, we’ve seen retail sales plunge down to multi decade lows with the sharpest drop in the numbers in 22 months. Retail sales in June were down 3.9% as fears of a recession saw consumers cut back on spending.
The hawkish stance of the European central bank was put to the test this week with very, very weak Eurozone data filtering through. German business confidence plunged below the 100 point mark as measured by the IFO index. This is the weakest reading in 3 years.
The French business confidence index saw the same type of decline. Even the Eurozone current account turned into a deficit in May.
We saw another turbulent week on global markets. These big jumps up and down are typical of a bear market. Most market watchers agree that we were seeing a bear market rally which would return to the downward trend. On a positive note, we saw oil prices ease by around 15% which helped markets earlier on in the week. We have yet to see the US housing market bottom out before the end of the problems for US financials will see a turnaround.