Wise Money Blog- daily news on financial matters

US stocks slide on jobs report

2009-07-02T13:14:00.001Z

US stocks finish a shortened week on a disappointing note on Thursday morning as data showed many more people lost their jobs during June than expected.

A total of 467,000 non-farm employees lost their jobs during last month, 100,000 more than had been expected. However investors took some confidence from the fact that the unemployment rate rose only a notch to 9.5 per cent, its highest since 1983.

Meanwhile 614,000 people claimed jobless benefits for the first time last week, a number that is seen as a more current indicator of the state of unemployment than the figures for June. This was slightly lower than expectations, as was the number continuing to claim such benefits.

Banks, which had been trading lower throughout the morning as investors moved to anticipate the figures, extended their declines. Citigroup fell 1 per cent to $2.94 and Wells Fargo gave up 1.2 per cent to $23.85.

Despite the economic data, trading is thin, with many investors having taken an early break before the long Independence Day weekend.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Markets resurgent as investor spirits rise

2009-07-01T18:24:00.002Z

Hopes that the global slump is ending and that recovery is taking firm hold have been reinforced as markets enter the second half of the year on a high after sharp gains in the past quarter.

Stock markets in the West have leapt over the past three months, as upbeat investors bet on a global economic resurgence.

The Pound has also fought back from steep losses as optimism grows that Britain’s recession will end soon. Sterling’s overall value is up by 10 per cent over the past three months.

Investors’ rising spirits are emphasised by a jump of more than two fifths in the MSCI World Index of stock markets across leading economies since it plumbed a low on March 9. The index has racked up gains of more than 20 per cent in the past quarter, registering its best showing since 1998.

In London, the FTSE 100 index has rallied by more than 9 per cent in the past quarter and stands 22 per cent above its nadir reached on March 3. Markets succumbed to a bout of jitters yesterday, however, as the exuberance was challenged by George Soros, the billionaire speculator.

Disappointing economic news underlined the fragility of recovery prospects, helping to leave the FTSE down by more than 1 per cent on the day. The Dow Jones industrial average also suffered a fall of about 1 per cent.

Mr Soros predicted that the United States would endure a “stop-go economy . . . As markets revive, fear of inflation will drive up interest rates, which will choke off recovery,” he said.

Nervousness that Britain’s upturn could be weak and prone to stall was fuelled by GDP figures showing a far steeper first quarter (Q1) slump than previously reported. The economy is now estimated to have shrunk by 2.4 per cent, its worst contraction for 50 years, rather than the 1.9 per cent officially estimated a month ago.

The figures revealed a far graver decline in the services sector, by 1.6 per cent, against a previously reported 1.2 per cent contraction.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

FTSE 100 goes into deep freeze

2009-06-30T12:56:00.002Z

Markets have been quiet in the past but this morning is almost something different.

In two hours of trading the FTSE has managed to excite absolutely nobody at all after the Dow and S&P went into deep freeze yesterday evening.

With volumes draining away as dealers head off to the beach, there is a good chance that the current moribund conditions will continue for quite some time.

Watching the charts is rather a frustrating pastime, as even small moves look huge due to lack of any major scale with which to compare. The FTSE 100 has now been stuck in a 100 point range for seven sessions and today does not look like changing matters.

One ray of hope is that the Pound has gone for broke this morning and busted straight out of the recent trading ranges.

The 07.00 to 09.00 (UK time) trading period is becoming quite interesting, as Europeans turn on their screens and hammer the market one way or the other.

The high this morning at $1.6742 has been opposed quite strongly since it was hit at 07.21 this morning and we have slipped back to $1.6650ish with punters getting heavily short all the way up.

Those who have dealt with sufficient margin to avoid being stopped out on the way up may be hoping for a nice price correction back into the $1.6200 to $1.6550 trading range, but if we do not get back down there today the chances of a new range being set up are quite strong.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

UK's debt will quadruple unless drastic steps are taken, says S&P

2009-06-29T09:32:00.002Z

Britain's national debt will quadruple to peaks only ever seen in the wake of the Second World War unless the labour Government takes drastic steps to address the pensions and ageing crisis, Standard & Poor's has warned.

The ratings agency has calculated privately that the UK's public sector debt could quadruple from its current level of just over 50pc of economic output to 200pc or above within the next four decades as the cost of servicing public sector pensions, ballooning social security costs and healthcare burdens becomes overwhelming, The Sunday Telegraph has learned.

The warning is doubly sobering since S&P last month placed Britain's debt on to "negative outlook" – an explicit signal that it could soon be downgraded.

Although the agency calculated two years ago that the effects of an ageing population, alongside high pensions and healthcare costs could push Britain's net debt up above 150pc by 2050, it now fears the added cost of the financial crisis means the debt mountain could in fact rival that in 1945, when the cost of fighting a world war pushed debt well beyond 200pc of GDP.

The warning coincides with research showing that the true size of the UK's unfunded public sector pensions deficit, which needs to be funded through taxpayer's cash, is now £1,177bn – a staggering £20,000 for every person in the UK.

A study for the highly respected British North American Committee, written by former Bank of England economist Neil Record, finds that the UK shortfall is far more severe than in the US or Canada.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Britain facing biggest deficit in Western world, warns OECD

2009-06-26T11:49:00.002Z

Hopes that the biggest post war economic slump will soon end have been dashed after the rich world's leading economic institution slashed its forecasts for economic growth and warned that Britain next year faces the worst deficit in the industrialised world.

In a further blow for Alistair Darling, the Organisation for Economic Co-operation and Development also warned that the Government may have to pump more than £130bn extra into the banking system.

Most economic statistics released in recent months have been better than expected, including the CBI's distributive trades survey yesterday, which was the strongest for a year.

However, the OECD downgraded its forecast for UK growth this year to a contraction of 4.3pc – compared with a previous forecast of -3.7pc.

The cut is significant, since the OECD chose on the other hand to increase its growth forecast for the world's leading industrialised economies from -4.3pc to -4.1pc. It added that the 30 member OECD would grow by 0.7pc next year, while Britain would stagnate, not growing at all.

The OECD said that not only was Britain's fiscal position far weaker than its neighbours, following many years of high borrowing by Gordon Brown, the UK was also more vulnerable to a consumer slowdown associated with falling house prices.

The Paris-based institution said the Government's fiscal deficit next year would climb to 14pc of gross domestic product – higher than anywhere else in the OECD, including Ireland and Iceland. The report urged the Bank of England to keep "the [interest] rate as close to zero as possible up to end 2010."

It also warned that more taxpayers' money may have to be poured into the financial system, saying: "further bank losses may well require substantial further capital injections by governments." It said the UK may have to spend a further 3-9pc of GDP – equivalent to £45bn-£135bn.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Mortgages- fixed rates could reach 6pc within weeks

2009-06-25T19:26:00.001Z

The average cost of a two year fixed rate mortgage has broken through the 5pc barrier for the first time since January and could soon reach 6pc.

Lenders are now charging an average of 5.04pc to home owners who want to fix their repayments for two years, up from 4.92pc on Monday and 4.74pc at the beginning of last week.

The steep rise in the average rate seen in recent days has been driven by Nationwide's decision to increase the cost of some of its fixed rate deals for the second time in two weeks.

Nationwide was followed by the Woolwich, which raised the cost of one of its two-year fixed-rate deals by 0.7pc, and other lenders are now expected to increase their rates again in the days ahead.

Nationwide sparked the latest round of price increases when it repriced its entire fixed rate mortgage range on June 12.

Other lenders were quick to follow suit, with major groups such as Halifax, Cheltenham & Gloucester, Abbey and Alliance & Leicester all increasing the cost of the deals they offered.

The latest round of price rises is bad news for home owners, with almost 90pc of mortgage borrowers opting for a fixed-rate loan, according to Legal & General, in a bid to lock in to low borrowing costs before the base rate starts to rise again.

But there are still good deals available, with Mansfield Building Society offering a two-year fix of 3.39pc for people with a 25pc deposit who pay a £999 fee, while Britannia Building Society has a two-year rate of 5.99pc for those with only a 10pc deposit who pay a £599 fee.

For those looking to fix for five years, the Post Office has a rate of 4.45pc at a 60pc loan to value ratio with a £599 fee, and Britannia Building Society is offering 6.19pc at a 90pc LTV with a £999 fee.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

ECB lends record €442 billion to banks

2009-06-24T14:21:00.001Z

The European Central Bank said today that it lent a record €442.24 billion at 1 per cent in one year funds to commercial banks.

The previous record for the central bank’s refinancing operations was €348.6 billion in two-week funds on December 18, 2007 as crisis-hit commercial banks scrambled to bolster their balance sheets during the crunch year-end period.

Interest rates overall would be expected to remain low, a key issue as the eurozone grapples with what is likely to be slow recovery from the worst global recession in more than 60 years.

The ECB has resisted the so-called "quantitative easing" practised by the US Federal Reserve and Bank of England — essentially printing money to buy government and private debt to boost recession-hit economies.

The ECB, however, has generated a flood of cash through loans that will now extend to 371 days, or 12 months, from one week to six months in the past.

Analysts had expected banks to leap at the chance to get an unlimited one-year loan at the ECB’s lowest rate ever.

The central bank has said that in subsequent one-year operations — the next is scheduled for September 29 — the rate could be higher depending on market conditions.

By providing huge amounts of cash to commercial banks, the ECB aims to lower the cost of borrowing by companies and individuals, and spur economic activity.

Money markets influenced by central bank operations determine the flow of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Markets tumble on World Bank's global economy fears

2009-06-23T11:53:00.001Z

Global stock markets tumbled yesterday on renewed concerns about the health of the world economy.

Global stock markets tumbled on Monday on renewed concerns about the health of the world economy.

The FTSE 100 index lost 111 points, or 2.6pc, to 4,234 – its lowest level since April.

Only four companies in the blue-chip index managed to end the day in positive territory as a drop in commodity prices knocked mining and oil companies.

The oil price fell $1.92 to $67.27 a barrel, and the price of copper fell more than 5pc to a three-week low on the London Metal Exchange.

In America the Dow Jones was down 2pc to 8,370 in mid afternoon trading.

Investors were shaken by a report from the World Bank which warned that the global economy would fall 2.9pc this year before rebounding in 2010.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

World Bank sees deeper and longer slump

2009-06-22T20:53:00.003Z

World Bank urges continued government stimulus as private sector investment famine cripples recovery in developing countries.

The global recession will be deeper and longer than expected said the World Bank today which is forecasting a harsher downturn this year as the famine in private sector investment cripples recovery among developing countries.

The world economy will shrink more aggressively this year, predicts the bank, contracting by 2.9 per cent, a much steeper decline than it predicted in March when the institution forecast a 1.7 per cent contraction.

The recovery in 2010 will be weaker, an expansion of 2 per cent compared with its previous prediction of 2.3 per cent.

The bank urged governments to continue stimulus spending as it warned that the world was entering an era of slower growth. Developing countries are being hit hard by a collapse in corporate finance as banks and multinational companies rein in their investment plans.

The World Bank's grim forecast sent the price of shares and commodities tumbling around the world.

Copper fell by more than 3 per cent and crude oil slipped further below $70 per barrel, dipping by a dollar to just over $68 per barrel for US Light Crude.

Energy prices have been on the slide over concerns that the economic recovery may be slower and more muted than expected.

The World Bank said that the US economy would shrink by 3 per cent this year while developing countries will grow by only 1.2 per cent, a very sharp slowdown from growth of 8 per cent in 2007 and 5.9 per cent in 2008.

Without the dynamo of the Chinese and Indian economies, the developing world shrink by 1.6 per cent, pushing more of the world's population into severe poverty.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Public borrowing hits record high of £20bn

2009-06-19T09:54:00.002Z

Public borrowing hit a record £19.9 billion in May as the recession continues to take its toll, official figures revealed yesterday morning.

May's borrowing was nearly double the £10.6 billion borrowed in April. Public sector net borrowing for this financial year is now £30.5 billion — more than twice the level seen at the same stage 12 months earlier.

Even though May is traditionally a weaker month for public finances, borrowing over the month is the biggest figure since the Office for National Statistics’ (ONS) records began in 1993.

Public sector net debt reached £774.8 billion last month, equivalent to 54.7 per cent of gross domestic product (GDP), far exceeding Labour's now defunct fiscal rules which said that debt would never exceed 40 per cent of GDP.

The number of people claiming unemployment benefits has risen by more than 80 per cent over the last year as companies cut jobs in the face of the sharp economic slowdown.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Mortgage lending fall undermines recovery hopes

2009-06-18T09:51:00.001Z

The value of UK home loans granted by banks and building societies fell by 58 per cent in the year to May as homeowners shunned re-mortgaging deals.

Gross mortgage lending totalled an estimated £10.3 billion in May, down 2 per cent compared to £10.5 billion in April and down 58 per cent from May 2008, according to figures published today by the Council of Mortgage Lenders (CML).

There have been signs recently that more home-buyers are returning to the market, with estate agents reporting higher transactions volumes and record rises in buyer interest.

But the CML said that the rise in buyer activity could be being offset by a decline in the number of homeowners taking out new mortgage deals when their fixed-term deal comes to an end. A more detailed breakdown of the figures will be published in two weeks time.

Many banks and building societies have a standard variable rate or SVR that mortgages revert to once the fixed-rate term has come to an end. Many SVRs, which are pegged to the Bank of England base rate, have tumbled since autumn last year as the Bank cut rates sharply.

They are now mostly more competitive than new fixed-deals on the market, prompting many homeowners to take advantage of the lower rate. Many lenders have raised the rates on their fixed-rate deals in recent weeks.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Bank pours cold water on economic recovery

2009-06-17T09:45:00.002Z

The Bank Of England is sceptical about the so called recovery in the economy it emerged today as minutes of its June meeting showed it was united on a decision to keep rates on hold.

Minutes from the Bank's meeting two weeks ago revealed the nine member monetary policy committee unaminously voted to keep rates at their historic low of 0.5 per cent.

The Bank conceded that there had been "positive developments" in the economy over the month and that "the risk of a continued sharp contraction in output in the near term had receded."

However, it indicated that a spate of more upbeat recent economic data about the services, industrial and housing sectors gave less reason for optimism than business groups and commentators have suggested.

"Even if developments over the month had been positive, the increase in confidence apparent in some financial market indicators and some household and corporate sector surveys remained fragile," the minutes said.

"There was no reason to conclude that the medium-term outlook for the economy and thus inflation has changed materially since the Inflation Report had been finalised."

Last week, the Pound surged to its highest overall levels this year as hopes that the British economy is emerging from recession continued to burgeon.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

UK inflation falls less than expected to 2.2%

2009-06-16T19:37:00.001Z

UK inflation fell by much less than expected in May, lengthening the odds of full blown deflation, official figures revealed today.

The consumer prices index (CPI) measure of inflation, the Bank of England's target measure, dropped to 2.2 per cent from 2.3 per cent. Analysts had expected a fall to 1.9 per cent. This is the 20th consecutive month it has been above the Bank's 2 per cent target.

The alternative retail prices index (RPI) inflation measure, which includes housing costs and upon which many pay deals are based, has already plunged into deflationary territory. But it delivered another surprise, edging up from -1.2 to -1.1 per cent last month on the back of rising mortgage rates, confounding economists' expectations of a further drop to -1.5 per cent.

In another sign that prices are rising, core inflation, which strips out volatile energy and food costs, also rose from 1.5 per cent to 1.6 per cent.

The increased price of cigarettes and alcohol, which rose as part of April's budget, helped to push inflation upwards, the Office for National Statistics said, but significant increases came from the rising cost of DVDs, televisions, clothing and footwear- indicating that sterling's weakness is filtering through as foreign made goods become more expensive.

However, policymakers and analysts still expect inflation to fall sharply over the coming months.

Sterling jumped by 0.6 per cent against the dollar to $1.6414 after the figures were released, and rose to the highest level this year against the euro, which fell to 84.44 pence against the pound.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Oil price falls below $71 as US Dollar surges

2009-06-15T19:32:00.000Z

A resurgence in the Dollar and concern about the fragility of economic recovery is depressing the oil price which fell below $71 per barrel in early trading this morning.

Buoyancy in the US currency is overshadowing the turmoil in Iran and keeping a brake on speculators in oil which normally surges during periods of instability in the Middle East.

The price of a barrel of US light crude for delivery in July fell by more than a dollar to $70.95 in trading in Singapore, continuing Friday's decline in crude when poor industrial output figures in Europe shook confidence in the likelihood of a speedy economic recovery.

The dollar rose half a percentage point against the euro to $1.3942 in a market still rattled by the weak April industrial production figures. Other commodity prices were also weakened by the strong dollar and doubts about the resurgence in demand for primary goods.

In Shanghai, copper fell its maximum daily limit of 5 per cent, while London Metal Exchange copper fell 2.8 per cent to $5,085 per tonne. Meanwhile, Brent crude fell by more than a dollar per barrel to $69.89 in Singapore trading.

A stronger dollar tends to depress oil and metal prices as investors using non-dollar funds find the commodities more expensive.

Alistair Darling, the Chancellor, voiced concern last week that soaring energy costs might put at risk an economic recovery.

Oil has doubled in price since the beginning of the year and Opec recently said that the recession in the oil markets was over.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

One in ten UK homeowners in negative equity

2009-06-12T12:31:00.002Z

1 in 10 UK homeowners fell into negative equity during the first three months of the year, the highest proportion for 15 years according to the Bank of England.

The Bank estimated that between 7 and 11 per cent of homeowners with a mortgage owed more to their lender than their property was worth, the equivalent of 700,000 to 1.1 million householders.

Negative equity may have amplified the speed and scale of the recession, the Bank said in its Quarterly Bulletin.

“Large losses on mortgage loans and associated securities can erode banks’ capital positions, affecting both lenders’ willingness and ability to lend and, in extreme cases, their solvency.”

Around 200,000 buy-to-let investors were also estimated to owe more on their mortgage than their property was worth, in a sector particularly battered by the economic downturn.

The research said that the overall number of those in negative equity during the first quarter of 2009 was comparable with those who suffered the problem in the mid-1990s, during the last housing market correction.

The Bank said house prices had fallen by around 20 per cent between the autumn of 2007 and the spring of 2009, the largest nominal fall in property values on record. In contrast, it took six years for house prices to fall by 15 per cent between 1989 and 1995.

But despite the steep drop, the Bank’s research suggested that between 73 per cent and 78 per cent of households who were in negative equity faced a shortfall of less than £15,000, and between 56 per cent and 65 per cent had one of less than £10,000.

The bulletin said that the UK’s biggest banks lent five times the value of their shareholder’s capital in home loans. In turn, 40 per cent of mortgage debt was packaged up and sold to raise more loans, increasing the risk of losses, the Bank said.

There are no figures which accurately measure the number of people who are in negative equity, so the Bank based its estimates on three studies. A survey of mortgage holders, data from the Financial Services Authority, and the lenders’ own data.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Wise Money lifted by jobs data

2009-06-11T07:28:00.000Z

Markets climed higher in early US trades as the latest report on jobless claims turned out to be better than expected and retail sales improved.

The Dow Jones was up 62.13 points at 8,801.15 at midday in New York, the S&P 500 was up 8.57 at 947.72, and the Nasdaq was up 11.48 at 1,864.56.

A Labor Department report showed first-time jobless benefits claimants fell to 601,000, better than expectations. The Commerce Department said retail sales increased 0.5 per cent in May after two months of declines.

The FTSE 100 index closed up just 25.12 points higher at 4,461.87 as banking sector gains were offset by falls in commodities.

Oil companies retreated after recent gains, despite oil prices rising for a third day, above $72 a barrel and hitting an eight-month high in New York on the back of a larger-than-expected drop in US crude inventories.

Findings from the National Institute of Economic and Social Research (NIESR), the leading economic think-tank, that the UK economy could emerge from recession soon gave strength to the pound.

Sterling climbed to its highest level in more than six months to reach €1.174 compared with €1.167 previously.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

US banks to pay back $68bn in rescue funds

2009-06-10T16:07:00.001Z

Hopes of a return to stability in the bombed out banking sector were raised by plans for ten banks to repay their loans.

Ten bailed-out US banks have been cleared to pay back a combined $68 billion (£41 billion) of government aid in a move greeted by investors as a sign that stability is returning to the sector.

The Treasury said that it had told ten institutions that they had raised enough new capital to enable them to repay loans made under the Troubled Asset Relief Program (Tarp).

Several banks, including JP Morgan Chase, Capital One Financial, Morgan Stanley and BB&T Corporation, immediately announced that they would take up the offer.

JPMorgan said that it would repay in full a $25 billion investment along with dividends. Jamie Dimon, the group’s chairman and chief executive, said: “Paying back Tarp at this time is the right thing for JPMorgan Chase, and it’s the right thing for our country.”

Morgan Stanley said that it was “pleased” to pay back $10 billion.

Kelly King, the chief executive of BB&T, said that the group would repay $3.134 billion. “Repaying the government’s investment will give us greater flexibility to benefit significantly from future opportunities that will be available as we emerge from this recession,” he said.

The others said to have been cleared were Goldman Sachs, Bank of New York Mellon, Northern Trust, State Street, American Express and US Bancorp. Many of the banks had winced at the restrictions accompanying the bailout funds, such as limits on executive pay.

The Treasury said in a statement that the repayments “follow a period in which many banks have successfully raised equity capital from private investors”. Timothy Geithner, the Treasury Secretary, said: “These repayments are an encouraging sign of financial repair but we still have work to do.”

US shares were flat on the news as investors fear that an oversupply of government debt could push interest rates higher. The Dow Jones industrial average inched up by 1.43 points or 0.02 per cent to 8,763.06.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

IMF tells Europe to come clean on bank losses

2009-06-09T19:32:00.002Z

The International Monetary Fund has called on eurozone governments to take urgent steps to clean up the banking system as losses mount, and advised the European Central Bank to prepare "all unconventional options" in case the crisis deepens.

"To restore confidence, you need total disclosure of possible losses," said Dominique Strauss-Kahn, the IMF's managing director. "Not only losses which are linked to the original sub-prime crisis, but also the losses linked to the slowdown in the economy, and impaired assets."

The latest IMF report said the chance to raise fresh bank equity while optimism lasts should be "seized without delay" and demanded a "comprehensive review to assess capital needs and viability."

"Stresses persist, conditions for access to bank lending are tight, funding costs remain high. Sizeable losses lie ahead as the recession unfolds. The financial sector is hamstrung in fulfilling its vital intermediation role."

The IMF says eurozone banks will need to raise a further $375bn (£235bn), compared to $250bn for US banks, and has called for a stress-test along the lines of the US Treasury probe.

There are widespread concerns that Germany in particular is hiding bank problems until after the September elections, using its "bad bank" scheme to keep "zombie institutions" alive.

The eurozone is not yet out of the woods, and risks sliding into a deeper downturn. "Adverse feedback loops between the financial and real sectors could trigger a protracted deflation," said the fund.

The euro fell sharply, although analysts said Ireland's troubles may ultimately pose a greater risk for sterling for contagion reasons. S&P has threatened to strip Britain of its AAA rating unless London gets a grip on spending. Austria is also in the firing line as concerns grow over bank exposure to Eastern Europe.

Ireland's woes are compounded by the crushing defeat of the premier Brian Cowen's Fianna Fail, which lost all its seats in the EU elections.

In Spain, the government announced a €9bn fund to rescue banks hit by the property crash. PriceWaterhouseCoopers said the sum fell far short of what is needed, fearing that Spain's banks will need at least €25bn and perhaps as much as €75bn in fresh capital. Non-performing loans will reach 7pc to 8pc, double the level in March.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling slides as pressure on Gordon ditherer Brown remains

2009-06-08T07:37:00.000Z

Sterling came under renewed pressure on foreign exchange markets on Monday morning as the Labour Party's heavy defeat in the European elections intensified pressure on the liar Gordon Brown.

The results of the European elections, which look set to see Labour trail in third after the Conservatives and UKIP, sent the Pound down by a cent by lunchtime in London.

It weakened by a cent to $1.5880 as dealers in London - where the majority of currency trading takes place - digested the results. The currency also fell against the euro at about 87p.

Sterling has been on the backfoot since a spate of resignations, and last week's local election results intensified speculation about whether Mr Brown can survive in Downing Street. Analysts said that the continued uncertainty is giving dealers good reason to dump the pound.

Investors will be particularly worried that a weakened Government will not be able to drive through the measures required to cut the Budget deficit.

Others caution, however, that the pressure on sterling will be tempered by signs that the UK and the US economies are stabilising after the "free-fall" that marked the six months that sandwiched Christmas. Analysts at Barclays reckon that sterling could claw back to $1.70-$1.80 later in the year.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Labour's death throes rattle Sterling

2009-06-05T10:28:00.000Z

Sterling tumbled against the dollar and the euro today on worsening political instability after James Purnell, the Work and Pensions Secretary, stepped down from the Cabinet.

The pound, which this week hit a seven-month high of $1.67, fell by 1 per cent to $1.6031 as Gordon Brown began an emergency reshuffle after the departure of three Cabinet minister this week. One euro is now worth 88.42p.

Despite the downward trend on sterling, blue-chip stocks were positive, with the FTSE 100 lifted by the mining sector.

The leading index gained 69.29 points, or 1.52 per cent, to 4,456.23 in early trading, with Rio Tinto the strongest riser, up 12 per cent to £30.52, after it walked away from a deal with Chinalco, the Chinese state-owned metals group, that had been unpopular with shareholders. Instead, investors will be able to participate in a $15.2 billion rights issue.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Bank holds interest rate in pause for breath

2009-06-04T15:17:00.003Z

BoE pegged interest rates at 0.5% today for a third month in a row.

Also stayed its hand over any other changes in its recession fighting strategy as it paused for breath in its battle to combat Britain’s economic slump.

The Bank opted to hold interest rates once more at their 315 year low of 0.5 per cent as it weighs the impact of its expanded £125 billion drive to jump-start the economy with injections of newly created money.

Between last October and March, the Bank drastically cut interest rates and embarked on its aggressive moves to “print money” under a strategy of quantitative easing (QE), involving huge purchases of government and company bonds to pump extra cash through the economy.

The latest glimmers of hope emerged yesterday when the key CIPS/Markit survey of the services industries, the engine room of the economy, showed the sector growing last month, for the first time in more than a year.

The survey’s headline index, which is closely watched by the bank's MPC, rose for a sixth month in a row to its best level since April 2008.

Conditions have also improved in manufacturing, with the parallel CIPS survey of industrial companies showing that, although the sector was still shrinking last month, its fortunes were the strongest for a year.

Other rosy news has come from the high street and the housing market, with retailers ringing up a surprisingly strong 0.9 per cent rise in the quantity of goods sold during April, and indications that the worst of the house price slump has passed.

Yet the Bank will remain on the alert for any signs that the recuperation of an economy that remains frail and vulnerable may falter.

The fragility of any revival was underlined by last month’s official GDP data, which confirmed a 1.9 per cent plunge in the first quarter, the steepest quarterly decline since 1979.

Leading economists also remain extremely worried that any recovery will be anaemic at best and is likely to prove short-lived.

Analysts fear that an upturn will not last as highly indebted households strive to rebuild their finances and as a battered banking sector continues to tighten credit conditions.

"We are currently in a Potemkin recovery — more appearance than reality,” Professor Charles Goodhart told The Times yesterday, in reference to the fake “Potemkin villages” constructed in 18th-century Russia to deceive Empress Catherine II.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Gloomy data weighs on wise money

2009-06-03T17:22:00.002Z

Bernanke warns that America must curb its budget deficit

Gloomy housing sector data and continued layoffs led to a subdued Wall Street opening as investors played safe with their profits after a succession of session gains.

Investors were also reacting to a warning from Federal Reserve chairman Ben Bernanke that Congress and the Obama administration must start plotting a strategy to curb record-high US budget deficits.

Failing to do so could eventually erode investor confidence and endanger the economy’s prospects for long-term health, he said.

Testifying before the House Budget Committee, Mr Bernanle said: “Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

The White House estimates that the government will rack up an unprecedented $1.8 trillion budget deficit this year. That would be more than four times last year’s all time high.

A survey by ADP, a payroll business, revealed that the US private sector shed 532,000 jobs in May - better than 545,000 in April but slightly higher than the 525,000 estimated.

In the UK, the pound gained strength on the release of data indicating a return to growth for the services sector.

The euro recovered slightly from a six-month low against the UK currency and the dollar continued its weak trend, but improved from a morning low to trade at $1.643.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Pound rises three cents to $1.64

2009-06-02T09:51:00.002Z

The Pound rose 3.03 cents against the dollar yesterday as a survey indicated the British manufacturing sector could stop shrinking by autumn and hopes were lifted that the worst of the recession was over.

Sterling closed up at $1.6428, the highest level since October 21, and 20pc higher than its lowest 2009 level in January. It also rose 2 cents against the euro yesterday to close at €1.1602.

The pound was helped by the publication of the latest manufacturing Purchasing Managers' Index (PMI), which signalled a better-than-expected improvement in the sector in May.

The PMI rose to a 12-month high of 45.4 in May, up from 43.1 in April. It has been rising sharply since hitting a low of 35.1 in February. A figure below 50 marks a contraction in activity and above indicates a rise.

Production and new orders fell at the slowest rates for 12 and 14 months respectively, with larger companies faring better than small and medium-sized businesses.

Particularly encouraging was the new orders balance, which rose to 48.9 from 46.1 in April, which is likely to trigger a process of restocking following a period when manufacturers rapidly ran their stocks down to reflect the fall in demand.

However, new export orders fell at a faster pace in May, measuring 45.3 on the PMI compared with 49.5 in April. It is further evidence that a weaker pound in 2009 has so far failed to boost exports significantly, as demand in Britain's key export markets remains subdued because of the global recession.

Unemployment in the sector continued to rise in May but the pace of job cuts slowed, with the PMI employment index rising to 38.9 from 36.1 in February. Unemployment in the UK as a whole is expected to rise above 3 million in 2010.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling hits six month high against the dollar

2009-06-01T08:19:00.001Z

Sterling reached its highest level against the dollar in more than six months as it took strength from an improved outlook for the global economy.

The UK currency closed at $1.6155 having earlier reached $1.6183 - on track for its biggest monthly gain since 1985.

Positive economic news from Japan and Germany, sent the dollar tumbling against a basket of currencies.

US stocks traded mainly flat after enjoying a promising start to the session with the release of data from the US Government which indicated that the recession could be on the turn.

Further data dampened earlier optimism with the Institute of Supply Management Chicago showed US midwest business activity slowing severely in May. Another survey showed consumer confidence in May was at its highest level since last September.

Government figures had earlier revealed that the US economy contracted slightly less than estimated in the first quarter. Corporate profits rebounded.

Gross domestic product, or total goods and services output within the US, dropped at a 5.7 per cent annual rate, the Commerce Department said, less than last month's 6.1 per cent government estimate. The economy contracted by 6.3 per cent in the fourth quarter.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.

Sterling buoyed with positive house price data

2009-05-29T13:50:00.002Z

Lots of positives in the global markets this morning and for sterling.

Firstly we have seen the Nationwide House price index survey show a surprise bounce as the average house price rose 1.2% in May- this is the strongest monthly gain for 19 months.

Although this is a good indicator that the severe downturn in the property market may be bottoming out- Nationwide noted that it is still too early to call as unemployment is still rising and credit conditions remain tight.

Sterling was also buoyed by UK consumer confidence matching its highest level in 11 months reported market researcher GfK NOP…the CBI also reported that business sentiment rose to the highest level since 2007.

Sterling is now pushing towards 1.61 against the dollar (a new 2009 high) and 155.00 against the Yen- we could see new yearly highs very soon on the EUR and for sterling on a trade weighted basis.

In the wider markets we have seen more leveraging into Oil and Gold which both rose sharply- Gold is closing in on $1,000/oz again and Oil has hit a new 6 month high above $65 a barrel. Commodity prices have leaped this month as a move out of the dollar and Yen mirrors the improved confidence and a move from safety to investments.

We have seen major gains in commodity based currencies particularly against the USD- with the CAD, AUD and NZD all making gains this month.

The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.