Sterling and euro fight back against US Dolllar

Sterling has risen higher against the US Dollar back over 1.51.

The spike in confidence and the euro gains against the USD have driven this move higher- it still needs to hold above 1.52 to encourage the markets to buy sterling further. 

With the budget in the pipeline I think the markets will be nervous to buy into sterling next week.

The euro has gained over a cent against the USD. Economic data certainly helped the move with Euro zone Industrial Production coming out much better than expected at +1.7% month on month and +1.4% year on year, the expectation was for +0.7% and -1.9%. 

The positive industrial production data can be held in stark contrast to the dire figures from the UK earlier in the week- the weather in the UK was blamed for the downturn in the UK…well they had bad weather in Europe too. 

Another reason for euro strength could be attributed to a US investment bank’s recommendation to go long on EUR/USD with a target of 1.45…could be a good position. 

Speculation that authorities will help tackle Greece at the EU summit yesterday and news that ECB president Jean Claude Trichet will leave Sydney early to attend a gathering of EU leaders is helping confidence in the euro. 

Although the euro has weakened since December the downturn, recently it has consolidated well and market confidence could easily return to buying the euro if the EU handle the Greece problem effectively.

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US consumer confidence remains fragile

Yesterdays US consumer confidence data came in weaker than expected and highlights the delicate recovery phase for the US economy. 

This also backs up recent dovish comments from the Fed asserting that interest rates will need to remain low for a prolonged period and that liquidity withdrawal may not be a foregone conclusion. The data helped to spook the markets and strengthened the natural safe havens of the JPY and USD. 

The Yen was also lifted on good export data pushing GBP/JPY back below 140.00 and USD/JPY down to 90.00. 

At the moment for recovery we have an east and west divide with robust recovery coming from China, Malaysia, Honk Kong contrasting the jitters in Europe, the UK and the US. The tide has shifted.

The Greece debacle is still ongoing and Fitch downgraded the 4 largest banks to BBB with a negative outlook to boot. The situation was not helped by a German lawmaker of the ruling conservative party commenting that Germany must ensure that it does not pay for Greece as it could trigger the demand for more aid. 

In addition the Czech finance minister said that the Greek pledge to cut the deficit to 3% in 3 years is "nonsense" in his view. 

So some lively times ahead.

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Volatility is the name of the day

A good start for Sterling quickly turned sour as fear once again gripped the markets by the throat. 

A lack of action points on the Greece situation certainly did not help matters, however other factors also conspired to turn the markets away from risk. 

A big factor was the decision from the Chinese central bank (PBOC) that it was once again raising its reserve requirements by another 50 basis points. The decision to do this is to cool the rapid pace of credit growth in China which is unsustainable.

The monetary tightening will hurt global growth sentiment as China is the key driver for global recovery; in particular Australia will suffer. 

The news led to a sell off in the AUD, GBP and the EUR; the negative vibes were not helped by weak Eurozone data this morning with GDP coming in at a lame 0.1% against the expectation of 0.4% and a decline of -1.7% for Industrial Production.

Given the mood in the markets we can expect to see more selling pressure on EUR/USD and GBP/USD…later today we have US retail sales- a +0.4% is expected and a good number is need to help lift the cheer in the markets. 

EUR/USD at 1.35 is a key level to watch out for and if broke should enforce further downside momentum. Sterling has benefited on the weakness in the euro pushing beyond 1.15 again.

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Euro bashing rests for porfit taking

However the pause in its recent decline is more to do with profit taking than a reversal of the currency’s fortunes. 

Today's Financial Times suggests that £7 billion of short trades are weighing against the eurozone's immediate currency prospects.


We did see both Euro and Sterling hit 8 month lows overnight as the Asian markets rushed to buy the perceived safe haven US Dollar but once again, proximity to support levels was enough to bounce both rates as Europe entered the fray. 

The concern for Euro bulls is that recovery attempts seem very limited in scope and small in magnitude. 

The rally for the single currency in the US last night was snuffed out by the combination of a late sell off in equities and an expectation that Bernanke’s testimony this evening could very well signal a more hawkish Federal Reserve outlook, with speculation that he might lay groundwork for a tightening of monetary policy.

Yesterday’s markets, outside the late US fluctuations, were largely extremely boring with traders waiting for developments (either good or bad) on the Eurozone Sovereign issue. 

Nothing much happened. The Spanish Finance minister was in London talking to bond holders and the Portuguese and Greek governments were both vocal in their defence of their respective fiscal positions Data again is light today with UK trades and US wholesale inventories the highlights. 

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Fear grips the markets

Volatility in the money markets over the last 24 hours has been staggering! 

The main economic events yesterday were related to the UK and European central bank decisions- however this was not the driver for the volatility.

The exact location of the fear was GPS…Greece, Portugal and Spain. 

There was a scramble for safer shores in the USD and the YEN and out of the euro and higher yielders and to some extent the pound as panic swept the markets. 

Escalating debt concerns are increasing in these European economies and this drove stocks and commodities lower- debts spreads between the good eggs and bad eggs widened considerably and could increase further.

The market clearly needs some reassurance in regards to the bad economic apples of Europe and ECB president Trichet did little to reassure the markets yesterday so we await a viable plan from each economy.

It seems the simmering problems perceived for some time within Europe are finally coming to the boil and the question is can each economy sort out their own mess? 

You could also throw Ireland into the equation to formulate the PIGS of Europe- if they cannot reduce their debt- will the ECB and IMF offer a trough for aid? 

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Greece denies a bail out is required

Greece's Prime Minister George Papandreou has denied speculation that it will have to be bailed out by the European Union.

Reports have suggested that the EU will pump money to help Greece whose public finances are in ruins.
At the World Economic Forum in Davos, he also said countries like his "are being used as the weak link, if you like, of the eurozone."
European leaders also denied that Greece would be kicked out of the euro.
"Nobody's going to be leaving the euro," Spain's Prime Minister Jose Luis Rodriguez Zapatero said.
"On the contrary, countries will be joining the euro in the future. The same is true for the EU. That is the best proof on how the EU has helped to guarantee stability."
A report in Le Monde suggested that the EU was considering bailing out Greece because the Hellenic nation's woes had shaken the euro.
'Speculation'
European Central Bank President Jean-Claude Trichet said the pact had helped keep the 16 members of the eurozone from experiencing even more strain.
Mr Papandreou said that there had been a lot of "speculation" during the financial crisis and that people were against the euro had targeted countries like his in the bloc.
Greece's public debt stands at about 300bn euros ($419bn, £259bn).
He also denied a Financial Times report that said Greece had been asking China to buy up to 25bn euros of its debt to help secure its finances.
But Mr Papandreou refused to blame the EU for the country's troubles.
"We Greeks see it as our problem to put our house in order," he said. "Greece blames itself, not the EU."
Mr Papandreou also floated the idea of having EU government bonds for all the members in the bloc.
The crisis is seen as the first test since the euro was created in 1999.
Greece, Spain, Portugal, Ireland and especially Italy together account for 40% of the eurozone's debt.
Their debt has ballooned as their countries have been battered by the financial crisis, while larger economies have had to spend huge amounts to bail out their key industries.
Since the financial crisis last year, many countries - including the UK, France and Germany - have risen above the EU's limits on public spending as a proportion of growth.
The EU's Stability and Growth Pact states that no nation in the bloc should have an annual budget deficit higher than 3% of its gross domestic product.
Greece aims to shrink public debt to 9.1% of overall economic output this year, down from 12.7% last year.

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China and Eurozone centres of markets attention

China are scheduled to release their 4th Quarter GDP figure with market consensus looking for reported growth of 10.5%. 

The odds however are for an even stronger outcome and markets could react very positively towards the regions currencies and commodity currencies against those of the industrialised West. 

In The Land of the Rising Sun, this week should see further developments in the winding up of Japan Airlines. Reliable rumour has it that the company’s commercial activities, including their oil and fuel contract will be 100% guaranteed but that their forex hedges will be required to be unwound. This could mean the company needing to sell US Dollars against the Yen.

As expected last week, there was no change to the ECB’s policy interest rate and Trichet’s post-announcement was largely uneventful. 

Although he managed to achieve a balanced tone to his testimony, it was apparent that he was not overly concerned on imminent inflationary pressures within the zone. 

He acknowledged that current fiscal problems are placing a considerable burden on monetary policy but that individual States’ current difficulties would not cause the ECB to require a change in the collateral framework of any country.

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Thin market trading after Christmas reopening

The markets have today reopened after the Christmas break with little to report. 

The Euro/US Dollar is attempting to push back up over 1.44 and sustain this level, with cable struggling to hold above 1.60. USD/CAD has hit a 2 month low of  1.0373. 

 European data released this morning showed that French Gross domestic product remained at 0.3% (QoQ), as a result the euro did not budge.
 

Throughout the trading day so far the euro has remained pretty strong, helped by a slightly better than expected figure for Italian business confidence. The Pound has gained ever so slightly against the greenback. 

This afternoon we have US consumer confidence which is expected to show a figure of 53, against a previous figure of 49.50   

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Wise Money wishes you a Merry Christmas as FTSE 100 nears year high

The UK's FTSE 100 stock exchange index has neared its year high in thin trading on Christmas Eve.

London's index of leading shares was up 8.6 points - or 0.16pc - at 5381.24 at 9.10am, after closing up closed up 43.72 points – or 0.8pc – at 5372.38 on Thursday.

The index is up around 3pc this week and it 21pc since the start of 2009. It hit its year high of 5382.67 on November 16.
 

European bourses were also higher with Germany's DAX and France's CAC up 0.2pc and 0.1pc respectively.

Earlier, Asian markets shrugged off a lacklustre performance on Wall Street to move higher amid expectations China will maintain loose monetary policy.

China's Shanghai Composite Index gain 79.63 points, or 2.6pc, to close at 3,153.41 and Hong Kong's Hang Seng climbed 188.26, or 0.9pc, to 21,517.

Japan's Nikkei 225 stock average rose to a fresh three-month high as the yen's recent weakness lifted exporters amid thin Christmas season trade. The index gained 158.89 points, or 1.5pc, to 10,536.92, the highest finish since late September.

Most other markets gained, including Seoul's Kospi, which added 1.3pc, and Taiwan's Taiex, up 0.8pc. On Friday, markets around the world will be closed for the Christmas holiday though Japan and China will continue to trade.

A surprise 11.3pc fall in new US homes sales in November to their lowest level since March, confounding economists who had expected an increase, was offset by a 0.4pc rise in personal incomes in November — the fastest rate in four months — helped by higher wages. 

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US Dollar bounces on employment figures

The surprise US non farms payrolls that came out on Friday took centre stage. 

A reading of -125k was expected but the actual data came out at -11k. This shook the markets, giving the US Dollar a boost as investors scrambled out of most majors including JPY, GBP and EUR positions. JPY weakened by 2.4 cents, GBP fell 2.5 cents on the day and EUR fell by 2.7 cents. 

The far better than expected payrolls reading showed that US employers cut the fewest jobs in November since the recession began; this positive reading surprised the market and is a strong recovery sign. However, a large portion of the better than expected reading is attributed to the seasonal temporary increases in staff over the holiday period. 

It is not surprising that there is such a strong influx in temporary staff numbers as many companies have aggressively cut their permanent staff in order to cut costs.

The headline payrolls data overshadowed the unemployment rate which came out at 10.0%, whilst this an improvement on last month’s reading (of 10.2%) it is still an ongoing concern to US recovery (the last time unemployment was this high was back in 1983).

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US Dollar slips again

The move back into the US Dollar did not last too long as was mainly attributed to the fear factor surrounding Dubai. 

As the markets started to feel more comfortable the US Dollar fell pretty much across the board. EUR/USD again pushed through 1.5050 and then through the 1.51 level, GBP/USD also gained back to the 1.66 level. 

Apparently unnamed sources from the ECB are saying that ECB officials are not concerned about the recent euro strength against the USD- not sure I believe that. This week we have the ECB and the improvement in economic data recently has caused speculation that the ECB will turn more Hawkish in their approach to monetary policy. 

The problem with this is that it would lead to further euro strength if the ECB move before the US Fed and this will certainly be an issue on the agenda for the ECB going into today’s interest rate meeting.

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Fear factor returns

Despite good economic data yesterday from the US in the form of US pending home sales and Manufacturing ISM the market flipped into negative mode.

There is no one reason for this shift but a culmination of reasons and this led to equities tumbling and Oil and commodities falling; the main losers were the banks as fears rose on renewed balance sheet concerns. 

September was previously touted as the month for stocks to fall and the first day of the month definitely backed up this prediction. Concerns over the sustainability of China’s growth were a big factor and also discouraging data from automakers. 

In the markets we witnessed further strength in the USD and the JPY as the risk aversion trend came into play. GBP/USD moved from a morning high of 1.6350 to a low of 1.6111 and EUR/USD retreated from 1.43 to 1.42; GBP/JPY fell back under the 150 level as the positive YEN feel on the new leadership continued coupled with strength on the back of risk aversion. 

USD/JPY moved into 92.00 levels and this brings the 90.00 level into focus again.

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Stock markets euphoria comes to abrupt halt

The rally in shares came to an abrupt end today as the leading FTSE 100 share index dropped back by 31 points in early trading.

Falls across the mining sector pulled the index back from yesterday's ten month high to 4,865.10, a 0.64 per cent drop. The rally had been fuelled by growing signs the global economic recovery is quickening.

The drop in UK shares followed a muted end of session in New York, where the Dow Jones industrial average ended up just 3.32 points at 9,509.28 after a buying spree.

Overnight in Asia shares also slipped in a part reversal of the previous day's solid gains, as many investors stuck to the sidelines, awaiting more clues on whether the economic recovery would prove long-term.

Japan's Nikkei average shed 0.8 per cent after jumping 3.4 per cent the previous day, its biggest one-day gain in three and a half months.

In Europe Frankfurt's DAX slid 0.67 per cent to 5,482.99 and Paris's CAC 40 edged down 0.91 per cent to 3,618.77 points.

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Wise Money asks if the good cheer will prevail?

On Friday we had further positive feedback from the US economy as existing home sales came in much better than forecast hitting 2 year highs.

This data and a healthy economic assessment from Ben Bernanke boosted the good cheer in the markets. We are approaching the one year mark from the collapse in the financial systems and at the moment things are looking pretty steady and stable.

However I feel economic data will be closely scrutinized in the next quarter to look for sustainability in the markets and not simply a knee jerk response to extra stimulus.

An article in the FT by Nouriel Roubini points to a threat of a double dip recession if the recovery turns anaemic.

Chin up to you Aussie readers- yes you have lost the Ashes and also the rugby against rivals New Zealand over the weekend. However do not despair as your currency is strong- hitting new 12 year highs against sterling at 1.9608.

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Chinese shares fall on fears of false credit rally

Chinese shares fell to their lowest level in two months amid growing fears that this year's rally has been based on unsustainable levels of easy credit.

The benchmark Shanghai Composite Index fell 5.8pc to close at 2,870.63, its lowest level since June 18, with commodity and property companies hardest hit.

China's markets have shown increasing volatility this month as investors chase rumours that China's banks have been ordered to cool the surge of lending seen in the first half of the year.

Some analysts have estimated that up to 20pc of the $1 trillion (£615bn) in bank lending in the first half of 2009 has been funnelled into property and the stock market, creating a fresh round of asset price bubbles.

Reports have also suggested that rises in metal and other commodity prices this year have been driven by Chinese inventory stock-piling rather than actual demand, further dampening the appetite of investors.

Confidence had already been hit after a report released on Friday showed US consumer confidence was weaker than expected in August, confirming that China's exporters will not see recovery in the short term.

And foreign direct investment in China fell for a 10th month in succession in July as international companies stalled expansion plans amid the global financial crisis, according to figures released by the Commerce Ministry.

Although the market is still showing a 58pc gain this year – down from a high of 90pc on August 4 – the market has see-sawed since July on rumours and media reports that credit policy was tightening.

Despite some record land sales in China in the first half of this year, fuelled in part by state-owned enterprises seeking a home for easy credit, new property sales fell by 20pc to 30pc in major cities, indicating a worrying imbalance between supply and demand.

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Germany and France out of recession?

Official data has confirmed that Q2 GDP has come in positive 0.3% for both France and Germany.

Far better than expected and very surprising against a back drop of heavily contracting GDP for the nations at the back end of 2008 and early 2009.

In addition Eurozone GDP has just come in at -0.1% much better than the forecast of -0.5%- this means that the Eurozone as a whole is nearing a turn to positive growth.

In the markets the euro has gained a little against the USD but no move at all against the Pound. Personally I thing the good numbers should be taken with a pinch of salt as the GDP gains could align to stimulus input over a real turn in demand.

Recently we saw that Eurozone Industrial Production fell 0.6% with falls noted in France and Germany and credit conditions remain tight- especially in Germany.

I feel we need to look for more economic feedback to substantiate this gain in GDP before we can declare that France and Germany are on the road to recovery.

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Credit tightening threatens China's giant Ponzi scheme

China's loan growth plunged in July while exports fell 23pc from a year ago after grinding lower for nine months as consumers in the West tighten their belts further.

The data raise fresh doubts about the strength of global trade and whether the world can rely on China's growth miracle to power recovery.

Separately, the Baltic Dry Index – measuring freight rates for bulk goods – has tipped over, dropping 25pc since late July. The shipping figures buttress reports that China has stopped building up stocks of metals and other commodities after a spate of frantic buying over the early summer.

China's central bank said loan growth fell to $52bn (£31bn) from $248bn a month earlier, although it is too early to tell whether Beijing has begun to rein in credit after the explosion of bank loans in the first half of the year.

The loan figures are being watched closely by analysts and traders in the City. Excess liquidity in China has been a key driver of global markets since the rally began in March.

Beijing is walking a tightrope by trying to offset the collapse in exports – almost 40pc of GDP – with an investment blitz in roads, railways, and industry through state-owned companies.

The real economy cannot absorb the money, so it is leaking into asset speculation. The central bank estimates that 20pc of fresh credit has ended up in equity markets. The Shanghai index is up 80pc this year, though profits have fallen by almost a third. The pattern echoes the final phase of Japan's Nikkei bubble in 1989.

China is a big fat tail risk for world markets. Shanghai equities have reached the same extreme as in late 2007. The country will have to cut credit growth, and when this happens, Shanghai equities and commodities will suffer. That is what could bring this global rally to a halt.

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US payroll numbers boost the US Dolllar

On Friday we saw the much anticipated US non farm payroll numbers come in far ahead of expectations.

The number of job losses in July came in at -240,000 against a forecast of -325,000. This was a huge lift for the markets and the US economy following 19 months of dire payroll numbers.

As anticipated the Dow and the FTSE rallied on the news as investor optimism increased; however in the currency markets we did not see the typical play into risk appetite trading and USD weakness.

Initially we did see the USD weaken against the Euro and the Pound, however this weakness was short lived and the USD rallied back considerable across the markets.

So what does this mean? Well it could mean a change in sentiment for the US economy whereby it no longer weakens on good news- the key driver for this is the anticipation that the Federal Reserve may now look to raise interest rates sooner than other major economies and is better placed to do so.

The economic data also helped to comfort the markets to viewing that the Fed will not look to expand (like the UK) its current measures on QE and ultimately that the economy is out of the deep water it was once in. It is still early days but a very good number nonetheless and could mark a turning point. GBP/USD filtered down to 1.66 and EUR/USD down to 1.4155.

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Wall ST slides ahead of earnings season

US stocks fell to their lowest levels in two months on Tuesday as investors sold shares ahead of the start of the second quarter earnings season.

Confidence in the economic recovery was knocked by talk of a potential second government stimulus plan after Laura Tyson, an economic adviser to president Barack Obama, and House Democratic leader Steny Hoyer both suggested there could be merits to such a package.

Economic fears and a strong dollar took its toll on commodities, with the price of oil falling for a fifth consecutive session.

Energy producers followed, and Schlumberger dropped 4.4 per cent to $49.20 while Exxon Mobil lost 2.3 per cent to $66.56.

Industrial stocks also suffered, and General Electric gave up 4.1 per cent to $11.01.

The benchmark S&P 500 closed down 2 per cent at 881.03, while the Dow Jones Industrial Average lost 1.9 per cent to 8,163.60 and the Nasdaq Composite gave up 2.3 per cent to 1,746.17.

That came after sharp selling in the afternoon as the S&P fell below its 200-day moving average, which is seen as a key support level.

Analysts predicted that the market would remain subdued at least until Thursday, after Alcoa has reported its results.

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Hesitant start for Asian markets

Markets got off to a hesitant start Monday as investor doubts on the staying power of a global recovery kept Asian stocks soggy and currencies subdued ahead of a much expanded Group of Eight meeting this week.

Japan’s Nikkei slipped 1.58 per cent to 9,661.27, while the MSCI index of Asia ex-Japan eased 1.1 per cent to 319.61.

The air of caution kept the US dollar and bonds supported as safe-havens, while pressuring commodity prices. Crude oil futures were down at five-week lows of $65.00 a barrel.

Investors were still smarting from last week’s dismal US payrolls report which put a question mark over the recovery there, and thus across the globe.

Stock bulls had been hoping for something more ”V”-shaped and the disappointment was clear in Thursday’s 2.9 per cent drop in the S&P 500. Having skipped a session on Friday for the Independence Day holiday, S&P 500 stock futures were off 0.86 per cent in Asia at 885.90.

That implied the cash index was perilously close to breaking major chart support of a head and shoulders pattern.

Investors were also wary ahead of the Group of Eight summit in L’Aquila, Italy on July 8-10, which has been expanded to include China and a host of developing nations.

China last week floated the idea of discussing the US dollar’s place as the sole international reserve currency, causing a brief dip in the currency.

The G8 pushed back, however, with a source telling Reuters there was no appetite for such a momentous change.

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Markets resurgent as investor spirits rise

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

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.

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ECB lends record €442 billion to banks

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

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.

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World Bank sees deeper and longer slump

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.

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Oil price falls below $71 as US Dollar surges

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.

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IMF tells Europe to come clean on bank losses

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.

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Sterling buoyed with positive house price data

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.

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Wise Money doubts that this bull market has legs

It was only a fortnight ago that investors were buzzing with enthusiasm and dreaming of a bull market.

Stockbrokers were reporting a sharp rise in trading volumes as private investors rushed to join in the stock market renaissance.

The great and the good were confident enough to announce that the bull market had indeed come.

Doubts are being raised as to whether this is the bull market we had been hoping for. Certainly the FTSE 100 has struggled to get into top gear since and although the wheels haven't come off, it has run out of gas.

London's index of leading shares may have jumped 25pc since hitting a low of 3,512 points on March 3, but it closed the week down at 4,348 – its first weekly decline for several weeks.

The stock market chartists also suggest that it is a tad early to call time on the bear market. Take the Coppock Indicator, which aims to identify the start of a bull market.

The Coppock indicator signalled rallies in 1988 and 1994, and investors who acted on it made a lot of money (although it gave a false signal back in the early stages of the dotcom bust).

It was first developed more than 40 years ago when church authorities asked Edwin Coppock, a business economist, for a low-risk, long-term signal for use on the Dow. Coppock believed that, in the markets, collective emotion outweighed collective reason and investors panic-sold to avoid losses.

He asked the bishops how long it took to recover from bereavement or similar trauma. They said between 11 and 14 months, so using the Coppock Breadth Indicator he would judge the momentum of the markets based on the average of their 11- and 14-month rates of change.

The confirmation or buy signal comes when the indicator is below zero and turning upwards from a trough.

We point out that the indicator has yet to provide a buy signal. W warns that it is too early to shout "Yippee, the bear market's over."

The dividend cut by BT, not to mention its redundancies, reminds us that troubles run deep in corporate Britain. And given the cautious overtones in the latest Bank of England quarterly inflation report you can understand that the majority of investors remain sceptical that this bull market has legs.

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.