Be sure to check out the Economic News - Henry's Views columns for previous months of 2006: August.

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Henry, 29/9.  Oil – down 20 cents to $62.76 per barrel; Gold – up $7.60 to $610.90; Dow Jones – up 29.21, or 0.25 percent, to 11,718.45; Australian dollar – being traded at 7am this morning at 74.85 US cents, down from yesterday’s close of 74.98 US cents; and US 10-year bond yields – 4.61% (up 2 basis points).

Henry says: The Dow Jones was briefly being traded above its record close of 11,722.98, set on January 14, 2000, before it dipped slightly before close.  This is a significant milestone - back in 2000, investors were overly optimistic about dot-com shares and the housing boom, both of which have since crumbled.

A US Commerce Department report released overnight revealed that second quarter gross domestic product, which measures total economic activity within the United States, advanced at a revised 2.6 per cent annual rate in the second quarter, down from the 2.9 per cent estimated a month ago. That was less than half the first quarter's 5.6 per cent rate.

Henry, 28/9.  Oil – up $1.95 to $62.96 per barrel; Gold – up 6.20 cents to $603.30; Dow Jones – up 19.85, or 0.17 percent, to 11,689.24; Australian dollar – being traded at 7am this morning at 75.09 US cents, unchanged from yesterday’s close; and US 10-year bond yields – 4.59% (up 1 basis point).

Henry says: Oil moved up nearly $2 overnight on news that OPEC may implement a lower production ceiling to halt the price slide. OPEC President Edmund Daukoru stated that if prices were to fall further "something needs to be done.
 
"We are already talking among ourselves in the Opec fold. The price is very low, and it's not good for investors".

Wall St remains optimistic, with the Dow Jones gaining 181.14 over the last three sessions. The good economic news that supported such optimism today came surprisingly from the housing sector: new home sales rose 4.1 percent in August, their largest jump in five months and perhaps evidence that the US housing slump could be short-lived.

Henry, 27/9.  Oil – down 44 cents to $61.01 per barrel; Gold – up 1.20 cents to $597.10; Dow Jones – up 93.58, or 0.81 percent, to 11,669.39; Australian dollar – being traded at 7am this morning at 75.22 US cents, down from yesterday’s close of 75.45 cents; and US 10-year bond yields – 4.58% (up 4 basis points).

Henry says: The Dow Jones finished at it's second highest level ever (just 53 points from the record close set in January 2000) on the back of a report by the Federal Reserve Bank of Richmond showing the region's economy had improved this month, as well as higher Conference Board consumer confidence figures.

Falling petrol prices have lifted expectations for corporate profits, as analysts expect the extra money left after the fuel bill will lift consumer spending. The only problem with this is that it could also lift inflation.

Henry, 26/9.  Oil – up 90 cents to $61.45 per barrel; Gold – up 50 cents to $595.90; Dow Jones – up 67.71, or 0.59 percent, to 11,575.81; Australian dollar – being traded at 7am this morning at 75.33 US cents, unchanged from yesterday’s close; and US 10-year bond yields – 4.54%.

Henry says: Dallas Federal Reserve President Richard Fisher said overnight that inflation was likely to be hampered by the slowing economy, and apart from housing and automotive sectors, the rest of the economy was doing ‘very well’, which pushed the Dow higher.  Bond traders are thinking otherwise however, and are backing the rapid cooling of the economy followed by rate cuts – 10-year bond yields jumped to 4.54%.

Henry, 25/9.  Oil – down $1.04 to $60.55 per barrel; Gold – up slightly to $589.40; Dow Jones – down 25.13 to 11,508.10; Australian dollar – being traded at 7am this morning at 74.98 US cents, down from Friday’s close of 75.56 US cents; and US 10-year bond yields – 4.60% (down 4 basis points).

Henry says: Fears of an overwhelming slowdown in the US economy once again sent shares down on Friday, despite the Fed's decision to hold rates last week.  Unsurprisingly, there was a bond rally again, sending bonds down a further 4 basis points. Goldman Sachs Group Inc. and Merrill Lynch & Co. claim the bond gains are only just getting started.

Henry, 22/9.  Oil – up 85 cents to $61.59 per barrel; Gold – up $2.10 to $588.30; Dow Jones – down 79.96, or 0.69 percent, to 11,533.23; Australian dollar – being traded at 7am this morning at 75.74 US cents, up from yesterday’s close of 75.54 US cents; and US 10-year bond yields – 4.64% (down 9 basis points).

Henry says: The apparent receding of inflationary pressure in the US economy, as evidenced by the Fed's decision to leave interest rates on hold for the second month running, led to a significant rally on the bond market, with yields jumping 9 basis points.

However, the Dow was down on a Philidephia Federal Reserve report announcing that their broadest measure of manufacturing activity moved into the negative for the first time in three and a half years, once again raising the risk of a hard landing for the US economy.

Henry, 21/9.  Oil – down $1.20 to $60.46 per barrel; Gold – up $3 to $586.20; Dow Jones – up 72.28, or 0.63 percent, to 11,613.19; Australian dollar – being traded at 7am this morning at 75.23 US cents, unchanged from yesterday’s close; and US 10-year bond yields – 4.73% (steady).

Henry says:  Stocks ended up overnight as the US Fed decided to hold interest rates steady at 5.25%.  Oil fell substantially again after a government report stated that crude and distillate supplies were up.

The Fed did not want to appear too doveish, however, and claimed that there was still risks of inflation: "Some inflation risks remain," the Fed said. "The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth"

Henry, 20/9.  Oil – down $2.14 cents to $61.66 per barrel; Gold – down $9.60, or 1.6%, to $583.20 (gold has now fallen 20% since its 26-year high of $732 in mid-May); Dow Jones – down 14.09, or 0.12 percent, to 11,540.91; Australian dollar – was being traded at 7am this morning at 75.18 US cents, lower than yesterday’s close of 75.54 US cents; and US 10-year bond yields – 4.73% (down 8 basis points).

Henry says:  Gold and oil prices are now well of their peaks, along with the prices of most other commodities.  We recommend this ripper article by Gary Dorsch as the best account we have yet seen on the causes of this fall.

US 10-year bond yields rallied further, after a Government report showed that wholesale prices rose by a smaller-than-expected amount, and more weak housing data.  These latest releases both  support the widely held theory that the Fed will leave US cash rates unchanged at tomorrow's meeting.

Henry, 19/9.  Oil – up 47 cents to $63.80 per barrel; Gold – up $9.80 to $592.80; Dow Jones – down 5.77, or 0.05 percent, to 11,555.00; Australian dollar – was being traded at 7am this morning at 75.55 US cents, higher than yesterday’s close of 75.34 US cents; and US 10-year bond yields – 4.81% (up 2 basis points).

Henry says: The US Commerce Department released the June quarter current account deficit (CAD) figures overnight, which showed an increase of 2.4% to the second highest level in history - $US218.4 billion.  This deficit is a major threat to continued strong global economic growth.

For those wanting to know what is meant by the CAD, it represents the amount needed to borrow from foreigners to cover a growing negative difference between a nation's exports and imports.  Its more traditional meaning is the villain in a Victorian melodama.  In Australia in the 1980s, at "Banana Republic" time, the two meanings briefly coalesced.

Henry, 18/9.  The August US Labor Department Consumer Price Index was released late last week, showing a 0.2% rise in both the headline rate and the closely watched core rate.  This supports the optimists who believe the US economy is well-placed for a soft landing.  The slowing in the pace of CPI growth was due to falling gasoline prices, and well as home ownership costs rising at a slower rate.

Some economists believe this sets the stage for Wednesday's US Fed meeting maintaining its pause on rate hikes, and at least in the short term contradicts last week's IMF encouragement to 'get tough on inflation'.

Oil gained 11 cents on Friday to $US63.33 a barrel, only the second daily rise in September. International Energy Agency (IEA) executive director Claude Mandil said that as the oil market continues to expand supply he expects the price to fall further, but there are still substantial concerns for supply disruptions, which has maintained prices at current levels.

Henry, 15/9. Oil – down 75 cents to $63.22 per barrel; Gold – down $10.30 to $586; Dow Jones – up 15.93, or 0.14 percent, to 11,527.39; Australian dollar – was being traded at 7am this morning at 75.50 US cents; and US 10-year bond yields – 4.79% (up 3 basis points).

Henry says: Retail and unemployment data released in the US overnight both confirmed and contradicted the theory of a rapidly slowing US economy.  Retail sales recorded a 0.2% rise in August after they increased sharply in July.  Analysts attributed the slowdown to high petrol prices and a slowdown in the sales of motor vehicles.  Analysts however were expecting a slowdown of 0.2%.

Labor Department figures showed that the number of Americans filing new claims for unemployment benefits dropped by 5,000 last week to 308,000, the lowest level in seven weeks. The economic slowdown has therefore not reached the point where employers are laying off workers.

Henry, 14/9.  Oil – up 21 cents to $63.97 per barrel; Gold – down $4.35 to $589.95; Dow Jones – up 45.23, or 0.39 percent, to 11,543.32; Australian dollar – was being traded at 7am this morning at 75.29 US cents; and US 10-year bond yields – 4.76% (down 1 basis point). 

Henry says: It's a big end-of-week for US economic data, with retail sales to be released tonight. Stocks rallied last night on the back of suggestions that, with petrol prices falling, there will be an increase in consumer spending and thus corporate profits.

Henry, 13/9.  Oil – down $1.85 to $63.76 per barrel; Gold – down $3 to $594.30; Dow Jones – up 101.25, or 0.89 percent, to 11,498.09; Australian dollar – was being traded at 7am this morning at 75.05 US cents; and US 10-year bond yields – 4.77% (down 3 basis points).

Henry says: Oil prices fell for the seventh straight session, dipping below $64 and to their lowest point since March.  The decline in oil can be seen as part of a broader slump in commodities due to rising global interest rates and a percieved cooling of the global economy.

Henry, 12/9.  Oil – down 64 cents to $65.61 per barrel; Gold – down to $597.30; Dow Jones – up 4.73, or 0.04 percent, to 11,396.84; Australian dollar – was being traded at 7am this morning at 75.10 US cents; and US 10-year bond yields – 4.80%.

Henry says: Two factors sent oil lower again overnight: 1) OPEC decided to leave their production ceiling unchanged, and 2) There has been some progression in discussions for Iran to suspend their uranium enrichment program.

A head of the International Atomic Energy Agency has asked for a further compromise between Iran and the group of countries offering the incentive package.  One of the crucial compromises that Iran is seeking is for the US to hold off attacks while discussions are being held.  Henry hopes that everyone has their diplomatic hat on, and we can find a peaceful way out of this potentially devastating situation.

Henry, 11/9.  Oil – down to $66.25 a barrel at Friday’s close; Gold – down to 607.20 an ounce, $23.38 down for the week; Dow Jones – up 60.67 points, or 0.54 percent, to 11,392.11; Australian dollar – was being traded at 7am this morning at 75.38 US cents; and US 10-year bond yields – 4.76% (down three basis points).

Henry says: The biggest economic news of last week was weak housing data, which saw stocks lose out through the week. The S&P 500 lost 0.6% for the week.  On the other hand, the price of oil fell to $66.25 a barrel on the back of news that the BP plant in Alaska that was the site of a spill would be back up and running sooner than expected.

Henry, 8/9.  Oil – down 18 cents to $67.32 a barrel; Gold – down $16.90 to $624.90 an ounce; Dow Jones – down 74.76 points, or 0.66 percent, to 11,331.44; Australian dollar – was being traded at 7am at 75.83 US cents; and US 10-year bond yields – 4.79% (down one basis point).

Henry says: Stocks ended down for the second day straight as investors are concerned about the extent and speed of the slowdown in the economy, but are also worried inflation isn't slowing, raising the need for further rate hikes. Yes, gentle readers, the S word is being thrown around. More poor housing data raises the potential for a hard landing for the US economy, with high inflation.

Henry, 7/9.  Oil – down $1.10 to $67.50 a barrel; Gold – down $5.10 to $641.80 an ounce; Dow Jones – down 63.08 points, or 0.55 percent, to 11,406.20; Australian dollar – was being traded at 7am at 76.63 US cents; and US 10-year bond yields – 4.80% (up two basis points).

Several reports spooked Wall St overnight, including a Labor Department report showing that wages rose at an annual rate of 4.9% in the second quarter, well above the 4.2% predicted.  An Institute for Supply Management report also showed that the services sector grew faster in August than expected.  The Fed’s “beige book”, also released yesterday, showed economic deceleration in five of the Fed’s 12 districts.
 
Henry says: Two weeks out from the next Fed meeting the fear is that the Fed will resume hiking rates, even as the economy is slowing. "Stagflation" cannot now be ruled out.

Henry, 6/9.  Oil – down 59 cents to US$68.60 a barrel; Gold – up $14.30 to $646.90 an ounce; Dow Jones – up 5.13 points, or 0.04 percent, to 11,469.28; Australian dollar – was being traded at 7am at 77.13 US cents; and US 10-year bond yields – 4.78% (up five basis points from Friday’s close).

Henry says:  Another day of low volume trading on Wall St, with many investors treading water as they wait for the next Fed meeting on September 20.

And, as widely expected, the Reserve Bank is also treading water as it awaits more global and domestic economic and geopolitical news.  Today's weak GDP outcome will generally be seen as "validating" the Reserve's caution.

Henry, 5/9.  TD Securities has estimated that consumer inflation in Australia was 0.6% in August, or 3.8 % over the year to August.  This will make today's RBA Board meeting more than usually interesting, especially as ABS data shows a strong (8%) rebound in building approvals. (See report by International Herald Tribune.)

Henry says: With inflation far too high, credit growth still too high (and rising), unemployment at record lows and the housing market recovering in the southeast of Australia and out of control in the west, we expect that at least two more rate hikes will be needed, and quite possibly more.

It's Labor Day in the US, so Wall St took a well-deserved long weekend.  However, in notable market news, US light sweet crude was down $US1.17 to $US68.02 a barrel in European trading. London Brent crude went even lower, settling at $US67.71, $US1.44 a barrel below Friday's close. 

Henry says: The price of oil dropped to a three-month low, as have the prices we are paying at the bowser - the petrol price has dropped by up to 10c a litre in the past week.  However, with the situation in Iran no closer to settlement, and continued strong global growth (US wobbles aside) we expect prices to stay uncomfortably high.

Henry 4/9.  Summer trading has been slow in the US, however investors are likely to be encouraged by last week’s economic reports indicating that the US economy is moderating, reducing the need for further interest rate rises.  Although the lack of economic data or profit reports is likely to mean that this week may have little to shock investors, oil is likely to be the market driver.

Henry says: UN Secretary General Kofi Annan last night met with Iranian President Mahmoud Ahmadinejad and again refused to halt Iran’s uranium enrichment program.  This must effect the price of oil, not to mention the many lives likely to be cut short as this matter slowly becomes a case of what is likely to be perceived as the least devestating outcome for the mighty USA.

Much closer to home is the neglected issue of Australia's foreign debt.  Fortunately Tim Colebatch is still following this matter and reports today.  "AUSTRALIA'S interest bill on its foreign debt has doubled in the past three years to hit a record $6.4 billion in June — almost 3 per cent of the country's income.

"As the nation's net foreign debt has risen towards $500 billion and world interest rates have climbed, the Australian Bureau of Statistics reports that the quarterly interest bill on the debt has jumped in three years from $3 billion to $6.4 billion".

Henry says: It has become fashionable to downplay the importance of this economic statistic.  But at a time when global interest rates are rising, the speed of Australia Inc's gearing up is alarming, at least to this former economic policy advisor.

Henry, 2/9.  US employers boosted payrolls by 128,000 in August, an improvement over the 121,000 jobs created in July, reducing fears that the economy is slipping into recession.

Oil prices fell below $70 a barrel on Friday, hitting a 10-week low, as Iran's defiance of the U.N. request to stop its nuclear enrichment program didn't lead to immediate sanctions.

Oil – down US$1.07 to $69.19 a barrel; Gold – down US1.60 to $632.60 an ounce; Dow Jones – up 0.73 percent, to 11,464.15; Australian dollar – up slightly overnight to 76.63 US cents; and US 10-year bond yields – 4.726% (down less than one basis point).

Henry says: US labor market data is reassuring, but UN now has to respond to Iran's finger in the air.

1/9. Oil – up 23 cents to $70.26 a barrel; Gold – up $8.10 to $634.20 an ounce; Dow Jones – up 1.76, or 0.02 percent, to 11,381.15; Australian dollar – was being traded up slightly at 7am at 76.39 US cents; and US 10-year bond yields – 4.73% (down three basis points).

Henry says: A speech on productivity by the Fed's Ben Bernanke did little to inspire the markets, who are waiting the results of a Government employment report - on 'non-farm payrolls' - to help them decide the extent to which the economy is slowing.

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