In October, property prices in Japan warmed up while the UK felt the freeze

By Justin Lowes

Early October saw substantial falls for markets, followed by a more modest recovery towards the end of the month. Only Japan managed to post a positive return overall. Despite negative performance, major markets outperformed smaller Asian markets as western senti-ment towards emerging markets waned. The beginning of the month saw a slew of negative data in the US. Payroll .gures fell for the .rst time in more than two years. Consumer Price In.ation rose to 4.7 percent. Industrial production fell by 1.3 percent in September. Retail sales fell. But on closer inspection, a silver lining was visible: Hurricane Katrina was behind the fall in jobs, and once en-ergy prices were stripped out in.ation .gures looked relatively benign. Retail sales actually rose once automobiles and parts were stripped out. Despite a fall in consumer con.dence and in mortgage applications, plus a further 0.25 percent rise in the interest rate, US housing sales remained very high and GDP .gures rose 3.8 percent in the year to the third quarter.

A similar blend of bad and good news was seen elsewhere. Poor industrial out-put .gures for Germany (-1.6 percent) were offset by positive numbers for the Euro-zone as a whole (+0.8 percent). Increased political uncertainty in Ger-many and social unrest in France, com-bined with in.ation .gures at 2.6 percent, were offset by .gures showing German business con.dence at a .ve-year high, French at an eight-month high and Ital-ian business con.dence at an 11-month high. German unemployment fell slightly to 11.6 percent.

In the UK however, most .gures re-leased were poor. In.ation climbed to 2.5 percent and GDP increased by only 1.6 percent in the year to the third quarter. Mortgage repossessions jumped 66 per-cent to a 9-year high, and unemployment .gures increased. According to a Price waterhouseCoopers survey, the number of people in the UK be-ing declared insolvent jumped by 46 percent over the previous year. This is more concerning in light of the fact that interest rates and unemployment .gures are still at historically low lev-els. However, housing prices surprised on the upside with a 1.3 percent rise in October, giving a 3.3 percent increase over the previous 12 months.

Only in Japan were .gures unequivocally bullish. Tokyo housing and land prices increased for the .rst time in 15 years in September. Retail sales increased by 1.9 percent for the year to August. Industrial production increased by 1 percent and the Nikkei hit a level not seen since early 2001.

Looking forward, one more signi.cant piece of news is that George Bush has nominated Ben Bernanke to replace Alan Greenspan as Chairman of the Federal Reserve. This has been seen as a positive by most commentators who view Bernanke as a solid and well-quali.ed replacement.

Justin Lowes is the Managing Director for Tenbridge Asset Management, a company offering discretionary portfolio man-agement to its clients. You can contact him by email at justin.lowes@tenbridge.com