Friday, 30 June 2006

Stocks surge as Fed talks of cooling in the US while data show heating in Europe

It was a pretty good day for stocks yesterday.

 28 June
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29 June
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Percent
change
S&P 5001,246.001,272.872.2
Nikkei 22514,886.1115,121.151.6
FTSE 1005,678.65,791.52.0
DAX5,456.875,581.672.3
CAC 404,774.004,880.382.2
Hang Seng15,742.6615,880.460.9
Straits Times2,350.802,386.771.5

The Federal Reserve raised interest rates yesterday, but its accompanying statement was seen to be dovish enough to propel the S&P 500 to its biggest one-day percentage gain since October 2003. Reuters has a wrap-up of all the main news from the US yesterday.

The U.S. economy grew at a revised 5.6 percent annual rate in the first quarter, as the fastest pace of growth in 2-1/2 years generated robust corporate profits, the Commerce Department said on Thursday...

On Thursday, the Federal Reserve announced it was raising its trendsetting federal funds rate another quarter percentage point to 5.25 percent -- a 17th straight hike -- but noted recent signs that "economic growth is moderating."

Fed policy-makers said that, while some inflation risks remain, slower growth should ease inflation pressures, raising hopes its prolonged rate-rising campaign was near an end...

Separately, the Labor Department reported that new claims for new weekly jobless pay climbed by 4,000 last week to 313,000 -- still a level that analysts say is consistent with a healthy job market.

The four-week moving average of new claims, which smoothes weekly volatility to offer a better picture of underlying labor market trends, fell by 6,000 last week to 305,500.

Mark Thoma has a detailed analysis of the FOMC statement at Economist's View.

Even as the Fed talks about slower growth in the US, Japan actually saw industrial output fall in May.

Industrial production declined by a bigger than expected 1.0 percent in May compared with April but was up 4.2 percent year-on-year, the trade ministry said in a preliminary estimate...

The ministry, however, forecasts a recovery in June and July, saying: "Industrial production is on a moderately upward trend."

Meanwhile, European economies still look relatively hot, as Bloomberg reports.

Germany's seasonally adjusted jobless rate fell to 10.9 percent in June, the lowest since 2004, from 11 percent in May, the Federal Labor Agency in Nuremberg said today. M3, the ECB's preferred measure of money supply, rose 8.9 percent in May from a year earlier, after gaining 8.7 percent in April. The Frankfurt- based bank says more than 4.5 percent risks stoking inflation.

And it is a similar picture in the UK, reports Reuters.

Outstanding mortgage debt hit a seasonally adjusted 1,006,796 million pounds in May as net lending surged by 9.304 billion pounds, the biggest monthly gain for 2-1/2 years...

The number of mortgage approvals rebounded to 117,000 in May from 106,000 in April, suggesting that housing market activity will stay strong in coming months...

House price data also out on Thursday showed a 0.3 percent rise in June taking the annual rate of increase to 5.0 percent, its highest in three months, according to the Nationwide Building Society...

Thursday's figures also showed consumer credit shot up in May by 1.225 billion pounds in May compared with 816 million pounds in April and against forecasts for an increase of 1.0 billion pounds.

Total net lending showed its strongest gain in nearly two years at 10.529 billion pounds, up from 9.368 billion in April.

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