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A question of confidence

18 January 2006 Angelo Coppola

The US market may have some lessons for South Africa, while it is much of the same in the Eurozone and Asia with both areas suffering from consumer confidence issues, which generally drive economies.

Kevin Lings economist at Stanlib says that the markets in the US are hovering in the middle with an OK performance, performing at trend, predicted for 2006.

The story is not about how fast they are growing but the risks that remain especially on the housing market front, which could impact on the South African market, in the form of a potential sentiment knock-on effect, which is not a direct impact. There may be some nervousness if something does happen across the pond.

As an aside another issue is the gasoline price, which is a drag on the US, with a year on year price growth rate of 25%.

Interestingly the big markets in the US were all trading at all-time record highs including the NYSE, small cap Russell 2000 and the S&P 600.

House prices have kept the consumers going, as is the case in most of the rest of the world. There doesnt seem to be any real let down predicted.

But how much new property are they developing - a whopping 6% - which is the highest level in fixed investment in property since 1955.

The problem is that there is property equity extraction to the tune of $6bn, with this money being spent on consumer goods. This trend wont continue.

In Europe Kevin Lings, economist at Stanlib, the EB is concerned about underlying inflation, thus the hike in December, with a further 2 hikes predicted.

Europe is doing much better, dominated by France and Germany although not spectacular, it is evident. While Italy and Spain not showing any decernible improvement.

The essence is consumer confidence improving and retail sales increases needed to jump start the euro zone. Inflation seems to be under control.

In Japan it is the same problem consumer spending and confidence is lacking. Witness South Africa and how this is driving the economy. There is some evidence of confidence and property prices in Hong Kong are increasing for the first time in years.

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