Falling incomes? Markets for the week ending 29-Aug

Economic Update
U.S. stocks rose sharply on Thursday as the government reported the economy grew at a surprisingly robust clip in the second quarter and oil prices eased, driving gains in major industrial and financial companies and bolstering optimism exporters' earnings will improve. The brighter economic outlook coupled with a management shake-up at top U.S. mortgage finance company Fannie Mae boosted financial shares, which led market gains.

However, spending numbers released on Friday showed that U.S. consumers felt the impact of the tax rebates fading and a pickup in inflation eroding the American buying power.
Incomes dropped 0.7 percent, the first decrease since August 2005, reflecting the end of the rebates, after a 0.1 percent gain the prior month. The median projection was a decline of 0.2 percent.


Wider Financial Concerns
Loan book deterioration starting to hit a wider array of financial institutions as credit losses migrate from subprime into other sectors of household finance such as credit card, prime morrtgages and auto loans
S&P estimates losses on loan books could reach 265bn a year fior the next 2-3 years
Banks have used capital raising to offset losses incurred from writedoens,
Much of the capital raised has been in the form of hybrid securities with both debt and equity characteristics, i.e quality of the bank's capital has eroded

Idea?
With US getting itself slowly sorted while Europe struggling with a lagging economy and uncompetitive currency it may just be a good time to put on a US-outperformance trade?

Eric Tan,London