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US
Employment data released Friday reported the first decline in US jobs since August 2003. Numbers were well below previous estimates of an 115,000 increase. U.S. non-farm payrolls fell by an estimated 4000 in August, the Labor Department reported. The data adds to fears of a US economic slowdown.
There was better news from mortgage lender Countrywide Financial, which announced that it had obtained $12 billion of additional funding. This helped alleviate concerns regarding the credit markets.
The Oil Inventory Report indicated that oil stocks fell by 7.1M barrels last week, pushing oil prices to a record price. Oil reached its second record close on Thursday after three Texas refineries – with a combined daily output of 850,000 barrels – stopped production due to Hurricane Humberto. Crude oil futures were up 0.25% at $80.05 on Thursday.
US retail sales figures due out Friday will be closely watched. Consumer spending accounts for two-thirds of GDP, so the figures are a key measure of economic growth. Analysts expect a 0.5 percent increase.
Asia Pacific
Second Quarter GDP figures for Japan reveal that Japan’s economy contracted for the first time in two years. The market was expecting a decline of 0.7%, while the government forecasted a rise of 0.5%. The decline was 1.2%, sparking worries that the predicted US slowdown will be mirrored in Japan. Core machinery numbers for July beat forecasts at 17%, somewhat mitigating the GDP data.
As anticipated, New Zealand kept interest rates unchanged at 8.25% after four rate hikes since March. This follows the pattern of many of the world’s central banks, which are trying to prevent an economic downturn.
UK
Unable to raise sufficient cash from the wholesale markets, Northern Rock has turned to the Bank of England for an emergency bailout. The move sparked concerns that problems in the credit markets were deeper than previously thought. A £4.4 billion relief fund was offered by the Bank of England but troubles for Northern Rock may not be over. The company is set to issue warnings of decreased profits brought about by the credit crunch.
End note
The big event this week is the Federal Reserve meeting in the US. Market action hinges on expectations that the Fed will cut interest rates by at least 0.25%. Hopes are that a rate cut will stall a slowdown in the US.
Many finance companies are doing well, with Macquarie Bank in Australia expecting another record half-year profit. However the Northern Rock story reveals that many finance companies are also suffering due to the tightening credit market.
The extent of the credit crunch is still unfolding, with many investors waiting on the sidelines for a clearer direction on where markets are heading.
Happy investing!
Julia Lee
Head of Fundamental Analysis
HUBB Financial Group
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