Saturday, 28 July 2007

Dow falls again even as US economy rebounds

The worldwide flight to safety continued yesterday as the Dow completed its worst week since March 2003. From MarketWatch:

The Dow Jones Industrial Average was off 208 points at 13,265, giving it a 4.2% loss for the week, its largest percentage decline since the week ending March 28, 2003...

The S&P 500 index ended with a 23.6 point drop at 1,459. It fell 5% on the week. The Nasdaq Composite ended 37 points off at 2,562 on Friday, losing 4.6% for the week...

Crude futures climbed, with September crude closing at $77.02 a barrel, its highest level since mid-August of last year. The contract was up 2.8% for the session and 1.6% for the week as supply and demand concerns returned...

Spreads between credit-default swaps on high-yield bonds and U.S. Treasury bonds rose past key levels, according to Markit Group, which measures that data.

On the other hand, the economic data released yesterday were reasonably positive. MarketWatch reports that the US economy accelerated in the second quarter.

After hitting a pothole in the first quarter, the U.S. economy rebounded in the second quarter, growing at an annual rate of 3.4%, the fastest pace since the first quarter of 2006, the Commerce Department said Friday.

The improvement in the second quarter was concentrated in a stronger trade performance, better investment in structures, faster government spending and a rebuilding of inventories after significant reductions in the past two quarters. Business investment was strong, led by the fastest growth in spending on nonresidential structures in 13 years. These offset a sharp slowdown in consumer spending and a decline in investments in homes.

And the University of Michigan consumer sentiment index rose to 90.4 in July from 85.3 in June.

Consumer confidence has also risen in Germany. Bloomberg reports:

Consumer confidence in Germany, Europe's largest economy, rose to an eight-month high after unemployment declined to the lowest level in 12 years.

GfK AG's confidence index for August, based on a survey of about 2,000 people, rose to 8.7 from 8.5 in July, the Nuremberg- based market-research company said today. Economists expected a gain to 8.8, according to the median of 25 forecasts in a Bloomberg News survey. The July reading was revised up from 8.4.

Unfortunately, so has the inflation rate. Again from Bloomberg:

The rate of inflation in Germany, Europe's largest economy, unexpectedly increased in July due to higher energy and holiday costs and exceeded the European Central Bank's inflation limit for a fifth month.

Inflation accelerated to 2.2 percent from 2 percent the previous month under a harmonized European Union method, the Federal Statistics office in Wiesbaden said today. Economists expected German inflation to slow to 1.9 percent from 2 percent in June, the median of 23 estimates in a Bloomberg News survey showed. From a month ago, prices rose 0.7 percent.

But things are moving in the reverse direction in Japan. From Bloomberg:

Japan's retail sales unexpectedly dropped in June, as higher taxes, lower wages and a furor over lost pension records weighed on consumer sentiment.

Sales fell 0.4 percent from a year earlier, the Trade Ministry said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.6 percent gain...

The decline was led by falling sales of automobiles, household appliances and beverages, the ministry said. From a month earlier, retail sales slumped 0.8 percent.

And consumer prices continue to fall.

Japan's consumer prices declined for a fifth month in June, undermining the central bank's case that inflation will take hold and interest rates need to be raised.

Core consumer prices, which exclude fresh food, fell 0.1 percent from a year earlier, the statistics bureau said in Tokyo today, matching the median estimate of 44 economists surveyed by Bloomberg. Prices fell at the same pace the preceding two months.

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