Eoin Treacy (Fullermoney): Gold is likely to outperform oil
"The overlay chart of oil and gold shows that both commodities have been in impressive uptrends for much of the decade to date. However within this secular uptrend, there have been periods when one has outperformed the other. We have just gone through a significant phase where oil outperformed not only gold but a host of other commodities and asset classes. Gold has also performed well, but the question remains how well it will perform on its own if oil enters a medium-term correction.
"From the beginning of the year, oil has outperformed in spectacular fashion and has rallied to less than 7 times the price of gold in relative terms. This area marks the lower side of a more than five-year range and last week's bounce probably indicates that this period of outperformance is over for the medium-term. In this environment gold is likely to be the better investment."
Source: Eoin Treacy, Fullermoney, July 21, 2008.
Bloomberg: Hong Kong approves first gold exchange-traded fund
"The Hong Kong Securities and Futures Commission approved the city's first gold exchange-traded fund to meet investors' demand after bullion prices climbed.
"Hong Kong wants to bolster its position as an Asian financial center as rivals Tokyo and Singapore offer commodities trading. Gold for immediate delivery has jumped 39% in the past 12 months as investors seek an inflation hedge and alternative assets as global equities declined.
"'Gold-related investment products are expected to be well received when inflation remains high as investors are seeking ways to preserve their wealth,' Kenny Tang, associate director at Tung Tai Securities, said in Hong Kong. 'An ETF makes investment in gold easier and more accessible for public investors. What they need is only a stock-trading account.'
"A gold exchange-traded fund typically allows investors to trade the commodity without taking physical delivery of it. Each share in the fund represents a quantity of the commodity.
"The listing in Hong Kong comes after a similar fund started trading in Japan this year and in Singapore in 2006. Hong Kong is also planning to start a commodities exchange in the first quarter of 2009 and will offer dollar-denominated fuel oil contracts for delivery into China."
Source: Theresa Tang, Bloomberg, July 23, 2008.
Asha Bangalore (Northern Trust): Deteriorating outlook for the Eurozone
"The slew of weak data from across the Eurozone this morning all but guarantees that the European Central Bank (ECB) won't be making any more rate hikes in the second half of this year. The RBS/Markit flash composite PMI dropped from 49.3 in June to 47.8 in July, the lowest since November 2001 and clearly indicating a contracting economy. Most of the decline was concentrated in the manufacturing index, which slid from 49.2 to 47.5, while the services PMI slipped from 49.2 to 48.3.
"Today also saw the release of our favorite Eurozone leading indicator, the Belgian National Bank's (BNB) business confidence indicator. As we've noted before, thanks to Belgium's strong trade ties with its neighbors (about 80% of Belgium's manufacturing output is sold abroad, mostly to fellow EU members), the BNB's business confidence index is a reliable leading indicator - about six months out - for GDP growth in the Eurozone as a whole. Again, the news is not good. The composite index dropped to -7.6 in July from -5.9 in June, driven by a sharp fall in the retail sales sub-component, which plunged to -12.5 (-6.8 in June).
"Hitherto, we have seen plenty of negative data from Spain, the 'zone's fourth-largest economy, thanks to its housing market slump. Ireland has also been weakening rapidly. Now, the combination of high prices, a strong currency, and tight credit conditions is weighing on the likes of France and Germany. While one month of poor data does not a recession make, the trend clearly is downward - and that should be enough to stay the ECB's hand, even if consumer price inflation has not yet peaked."
Source: Victoria Marklew, Northern Trust - Daily Global Commentary, July 24, 2008.
Victoria Marklew (Northern Trust): Easing credit growth in Eurozone
"Today's ECB data on credit and money supply showed that the pace of loan growth to the private sector is easing, coming in at 9.8% on the year in June, versus 10.5% in May. In addition, the headline rate of growth in M3 money supply fell to an annual 9.5% in June from 10.0% the month before. While the pace of credit and monetary expansion is still high for a slowing economy, the fact that they are easing all but guarantees that the European Central Bank (ECB) won't be making any more rate hikes in the second half of this year."
Source: Victoria Marklew, Northern Trust - Daily Global Commentary, July 25, 2008.
Ifo: German Business Climate Index falls
"The Ifo Business Climate Index for industry and trade in Germany has fallen again significantly in July following a clear worsening in the previous month. The firms are much more dissatisfied with their current business situation and they are clearly more reserved regarding the six-month outlook. These results suggest that the economic upswing is coming to an end.
"In manufacturing the business climate index has fallen noticeably. Satisfaction with the current business situation has declined among the survey participants. They also anticipate weaker business in the coming six months. Export business will no longer expand so rapidly, in the estimation of the manufacturers. Their willingness to take on additional staff has weakened somewhat.
"In the other three survey sectors - construction, retailing and wholesaling - the business climate index is clearly trending downwards. In both trade sectors, wholesaling and retailing, the business climate index has fallen significantly. The trading firms have assessed both their current business situation as well as the six-month outlook clearly more pessimistically than in June. In construction the business climate has clouded somewhat. The current business situation has been assessed more unfavourably and the business expectations are more cautious than in the previous month."
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Source: Ifo, July 2008.
Times Online: Fears of recession grow as Britons stop spending and sales slump
"High street sales suffered a record slump last month, stoking fears that a vicious downturn in consumer spending will tip Britain into recession.
"The quantity of goods sold in shops across the country plummeted by 3.9% during June, the biggest monthly drop since 1986, official retail figures showed.
"The data, the first official confirmation that a severe downturn in consumer spending is taking hold, sparked further worries of a headlong retreat from the high street, undercutting the spending that has fuelled the economy for more than a decade.
"Sales of food were particularly hard hit, as shoppers balked at paying sharply higher prices for their weekly supermarket shop or lunchtime snack. Clothes and shoes purchases also dropped markedly."
Source: Gary Duncan, Times Online, July 25, 2008.
Victoria Marklew (Northern Trust): Hawkish Bank of England even as economy slows
"The relentless stream of negative economic news out of the UK has the headline writers dredging up the old specter of stagflation - a 'stagnant' economy with rising inflation. While the UK isn't at the point of recession yet, and there is reason to suppose that the headline inflation rate will start to ease come year's end, the outlook is certainly deteriorating.
"All told, it was no surprise when the Bank of England's (BoE) nine-member Monetary Policy Committee (MPC) left the repo rate unchanged at 5.0% on July 10. However, this morning's release of the minutes of that meeting did contain a bit of a surprise: while seven of the members opted to leave rates on hold and one argued for a cut, the ninth member had argued in favor of a rate hike. Not only was this three-way split unusual (the first in two years), the tone of the meeting was surprisingly hawkish, with the members debating the need to raise rates to defend their reputation as guardians of price stability."
Source: Victoria Marklew, Northern Trust - Daily Global Commentary, July 23, 2008.
Victoria Marklew (Northern Trust): Preliminary UK Q2 GDP confirms slowing economy
"Today's preliminary Q2 GDP report from the UK showed real growth slowing to 0.2% on the quarter and 1.6% on the year, the weakest in three years and down from 0.3% and 2.3%, respectively, in Q1. A marked fall in construction output, the result of weakness in private house building, was largely to blame - down 0.7% on the quarter. However, the slowdown in the dominant service sector was also notable, with growth of just 0.4% on the quarter and 2.1% on the year, the weakest annual growth in 16 years.
"This report will add to expectations that the Bank of England's Monetary Policy Committee will leave interest rates on hold for the next few months."
Source: Victoria Marklew, Northern Trust - Daily Global Commentary, July 25, 2008.
Victoria Marklew (Northern Trust): UK housing slowdown accelerates
"Finally, the housing sector slowdown continues to accelerate toward an outright slump. The British Bankers' Association today reported that mortgage approvals for house purchases - a leading indicator for the market as a whole - plummeted 67% on the year in June to just 21,118, the lowest number since the series began in September 1997."
Source: Victoria Marklew, Northern Trust - Daily Global Commentary, July 23, 2008.
Financial Times: Japan exports see first fall in 55 months
"Japanese exports shrank for the first time in nearly five years in June as the growth in shipments to emerging markets that had underpinned demand failed to offset the global impact of the US economic slowdown.
"The 1.7% year-on-year decline in shipments in June was the first in 55 months and increases the likelihood that Japan, the world's second largest economy, contracted in the second quarter.
"The data was a blow to advocates of the so-called 'decoupling' theory, who have argued that a surge in demand in emerging markets such as Asia, the Middle East and Russia would make up for any US slowdown.
"'The decoupling scenario is almost collapsing,' said Junko Nishioka, Japan economist at RBS.
"The decline in exports, coupled with an increase in the cost of imports largely because of a higher energy bill, pushed Japan's June trade surplus down nearly 90% to Y139bn ($1.3 billion) - much lower than expected."
Source: David Pilling, Financial Times, July 24, 2008.
Financial Times: China's banks told to tighten mortgages
"Chinese officials and government economists have warned domestic banks to tighten their mortgage lending criteria after the US government's action to prop up Fannie Mae and Freddie Mac, the giant mortgage agencies.
"Liu Mingkang, China's top banking regulator, has in recent days urged the country's state-owned commercial banks to beware of risks in the real estate sector and ordered them to tighten loan approval processes.
"Others among China's policy community have also begun to express concerns about the health of the country's banks amid signs a once-booming property sector has begun to slow.
"Average house prices in China's 70 largest cities were up 10.2% from a year earlier by the end of June, according to official figures. But sales volumes in important cities, including Shanghai, Beijing and Shenzhen, have fallen precipitously in recent months. Some analysts fear steep price falls ahead.
"Lending standards at Chinese banks are often much looser than in developed countries, in part because China is still in the early stages of building a credit rating system.
"China's total stock of consumer debt remains far below of more developed economies. At the end of June, total mortgage lending in the Chinese banking sector amounted to Rmb3,350 billion or nearly 12% of gross domestic product."
Source: Jamil Anderlini, Financial Times, July 23, 2008.
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