Rockets and Rates - up and down!
I am sure that President Bush might have been delighted to hear of the celebratory rockets fired for the 4th of July - until he heard that they were from the North Koreans - still, nice of them to join in. North Korea's rocket rattling (the 21st Century version of sabre rattling) had the effect, desired or otherwise, of unnerving the markets, especially the South Korean and Japanese indices, but certainly not to a level that would cause any significant concern as yet. The current array of geo-political risks seem to pop up like loose floorboards on quite a regular basis, but so far the tantrums of Mr Kim Jong-Il have not resulted in too much of a reaction. However, with the response from the Iranians due shortly on their nuclear programme, and the continuing issues around Gaza, the list of concerns is growing larger. This in part may explain the rising price of oil, which is going to add further concern about price pressures working their way through the system and into core inflation. Just to add further concerns to the subject, the Taiwanese papers are stating that their nation may start testing its own rockets in September - these will be merely capable of hitting mainland China - but that's enough.
The latest round of rate decisions last week seem to reflect the concern about these price pressures and the worry about further inflation to come. The ECB left the rate for the 12 nation Eurozone at 2.75% however, many economists are still anticipating rises going as high as 3.25% by the end of the year. This is still likely to add to the further strengthening of the Euro especially if the growing thought that the US rate rises may be near their peak is correct. For the UK, the less exciting policy of wait and see is probably the wisest alternative here, especially given the level of personal debt, and the sensitivity over consumer spending, which still continues to defy any logic that it should be weakening. With the latest Halifax housing figures showing a decline of 1.2% in June then maybe waiting until after the Summer might be the wisest council. Encouraging news though for the Chancellor with the latest UK manufacturing statistics showing a positive improvement and some economists stating that the economy could grow even faster than Gordon's current forecast of 2.25%.
In Iceland, the nation which was seen as the catalyst for the weakness this year in the emerging markets, the Central Bank is again having to take action to curb inflationary pressures and to add some support for its weakening Krona which has already fallen by over 23% against the Euro this year. Rates have been rising over the past few months and most recently by 0.75% to 13%. However, moving in the opposite direction in the emerging markets is South East Asia's largest economy, Indonesia, where rates have been cut for the second time in three months to 12.25%. This was carried out in order to help revive consumer spending, which has been hit by the government starting to finally pass on some of the fuel price rises and to get rid of its costly method of subsidy.
And finallyâ€¦.as part of the annual hunt to try and find a working umbrella in the Urquhart Stewart household, I am reminded of the number of such items I have left on London's public transport throughout the past twelve months. However, I must take comfort in that I am not alone in my forgetfulness when you consider the number and variation of items that were left on London's various transport facilities over the same period of time. Of the 150,000 lost items, these included a stuffed eagle, a wedding dress, a blow up sex doll, a lawnmower, a judge's gown, a human skull, several false legs, three dead bats, a funeral urn (with ashes included) and a 4 metre long boat. I can only hope that these were found separately, as I dread to think what the connection might be otherwise.
Have a good week,
Justin A. Urquhart Stewart
Seven Investment Management, a division of Killik & Co
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