Friday, 28 December 2007

Assassination and economic data trigger flight to safety

Looks like the credit crunch isn't the only thing that markets have to worry about. From Reuters:

Gold and government bond prices rose and U.S. stocks slid on Thursday as fears of regional instability following the assassination of Pakistani opposition leader Benazir Bhutto triggered demand for safe-haven assets.

The shock of Bhutto's death, combined with mostly weak U.S. economic data and potential additional write-offs by major investment banks, created a classic flight of capital to assets deemed as safe in times of geopolitical stress.

But the market reaction to a political event really just shows how nervous investors already are. And recent US economic data haven't been comforting. From another Reuters report:

Investors focused more on the Commerce Department report showing new orders up by a much less-than-forecast 0.1 percent in November...

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending, declined 0.4 percent after falling 2.9 percent in October, Commerce said, pointing to cooler fourth-quarter economic activity...

Initial claims for state unemployment insurance edged up to 349,000 last week from an upwardly revised 348,000 in the prior week, the Labor Department said.

The number of people still on the unemployment rolls after drawing an initial week of benefits in mid-December rose to its highest since mid-November 2005, the Labor Department said...

On a slightly brighter note, the Conference Board said its U.S. consumer confidence index rose to 88.6 in December from an upwardly revised 87.8 in November...

Meanwhile, the US housing market continues to sink. From Bloomberg yesterday:

Mortgage applications in the U.S. dropped last week to the lowest level of the year as demand to buy homes and refinance loans fell.

The Mortgage Bankers Association's index of applications decreased 7.6 percent to 603.6 after slumping 19.5 percent the prior week. The back-to-back decline was the biggest since April 2004...

Figures yesterday showed home prices fell in October by the most in at least six years. Home values in 20 metropolitan areas fell a greater-than-forecast 6.1 percent from a year earlier, the most since records began in 2001, according to the report from S&P/Case-Shiller.

The UK housing market appears to be faring little better. From another Bloomberg report yesterday:

U.K. mortgage approvals dropped 44 percent in November from a year earlier as higher borrowing costs and concern that home prices have further to fall deterred buyers, a British Bankers' Association report showed.

Banks granted 44,811 loans for house purchase, compared with 79,367 in November 2006, the London-based BBA, which represents the U.K.'s biggest banks, said today in a statement. Approvals rose just 1 percent from a 10-year low in October...

The value of loans fell 41 percent in November from a year earlier to 7 billion pounds ($14 billion), the BBA said.

Unsecured debt outstanding rose last month, with personal loans and overdrafts climbing by 276 million pounds and outstanding credit card debt increasing by 252 million pounds, the BBA said.

A separate report today from the Bank of England showed borrowing against the value of homes rose in the third quarter from a near two-year low in the second...

U.K. house prices fell the most in three years this month, with the average cost of a home in England and Wales sliding 0.3 percent to 175,200 pounds, London-based research group Hometrack Ltd. said Dec. 24. Home prices fell for a third month in November, the longest streak of declines since 1995, HBOS Plc said Dec. 5.

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