Markets slide as Greece scares investors

Stock markets fell yesterday as fear of contagion from Greece’s debt disaster combined with depressing US economic data to send share prices down.
The FTSE 100 slid 1.2 per cent to close down by 64.70 points at 5,278.22 amid fears that Greece’s problems could derail the already-fragile economic recovery. The CAC 40 in Paris fell even further, down 2 per cent, while Germany’s DAX was off more than 1.5 per cent.
Standard & Poor's warned on Wednesday night that it may slash Greece’s credit rating to close to junk within a month, despite new austerity measures designed to cut the country’s budget deficit.
The European Commission’s decision yesterday to revise down growth forecasts for Britain alone did nothing to calm shareholders’ nerves. The commission said that UK gross domestic product (GDP) was likely to increase by 0.6 per cent this year, rather than 0.9 per cent. 

 

However, prospects for the rest of Europe were not much brighter. The forecasts showed that economic growth across the Continent would be uncertain and dwarfed by emerging Asian rivals this year.
America’s main stock markets lost well over 1 per cent in early trading, with the Dow Jones industrial average shedding almost 174 points before recovering to close down 0.51 per cent at 10,321.03.
The US Labor Department’s tally of new claims for unemployment benefits also depressed investor sentiment. It said that new dole claims rose by 22,000 to a seasonally adjusted 496,000 people in the week to February 20. Economists had expected claims to fall to 455,000.
In his second day of testimony to a congressional committee, Ben Bernanke, the chairman of the Federal Reserve, cautioned against “over-interpreting” the jobs data, which he said may have been skewed by a backlog of claims caused by recent winter storms.
Mr Bernanke also said that the Fed was investigating the role played by Goldman Sachs and other Wall Street companies in Greece’s debt dilemma. 

 

American banks entered into currency swaps with Greece almost ten years ago that allowed the country to postpone recognising its debt.
“Using these instruments in a way that potentially destabilises a company or a country is counterproductive,” the Fed chairman said. “We’ll certainly be evaluating what we learn from the activities of the holding companies that we supervise here.”

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UK jobless data worse than expected

UK jobless claims were up 23,500 against the expectation of a fall of 10,000 for the employment sector. 

This data for January was disappointing but not wholly unexpected and simply reinforces the fact that the employment sector remains very sluggish. Although we may have officially exited the recession on paper the reality is that we still have a long a painful road ahead.

The official unemployment rate remains at 7.8%. In addition to the employment data we also had the minutes from the February interest rate meeting for the UK. 

The BoE minutes came in 9-0 as expected to keep interest rates and QE on hold. Although all members voted to leave the size of the asset purchase programme unchanged- it was noted that some members felt the arguments for a further increase were "finely balanced". 

This underlies the uncertainty within the MPC on the future impact of the £200 billion already introduced and therefore the MPC will not close the door on further QE if required.

Sterling is likely to remain subdued as the BoE feel that inflation will fall further in 2010 and further expansion of QE is a weapon that they will use again if necessary. 

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UK jobs market is still on the ropes- CIPD

The UK economy is facing more redundancies, with substantial cuts expected in the public sector, a report has said.
Almost one in three public sector employers plan to shed jobs this quarter, the Chartered Institute of Personnel and Development (CIPD) said.
Its latest quarterly survey found that the jobs outlook had worsened despite the UK emerging from recession.
"The UK jobs market is still on the ropes," the CIPD said as unemployment currently stands at 2.46 million.
The number of people out of work had been steadily rising since the summer of 2008, but saw a surprise fall in the three months to November.
The latest unemployment figures will be announced on Wednesday.

In the public sector, defence and public administration look set to be hit particularly hard.
However, there was better news from the private sector, which expects to see staff numbers grow for the first time since the start of the recession.
The CIPD's survey also reveals that the outsourcing of jobs abroad is a concern for the employment market again.
One in 10 companies is looking to outsource jobs in 2010, with almost half of IT companies saying they would be moving jobs abroad.
India remains the most popular outsourcing destination, followed by countries in Eastern Europe.

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UK crawls out of recession

UK Quarter 4 GDP growth for 2009 came in at + 0.1 %

Although well below the forecast of + 0.4 %, it signals that the UK has finally emerged from the recession- for now. 

The UK economy contracted 4.8 % in 2009 the biggest fall on record so a year to forget for the UK economy and the Pound. 

The data was much weaker than expected and the Pound fell from a high of 1.6268 against the USD down to 1.61 following the data. 

A spokesman for the Prime Minister ditherer brown affirmed that we are right to be confident but cautious about the economy- I would say more cautious than confident. 

The concern now is that the UK could slip into a double dip recession if the tepid growth experienced cools as we move through 2010. 

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Sterling strengthens to 1.15 against the euro

Sterling is continuing its rally against the weak euro but has fallen back against other major currencies. 

GBP/EUR is pushing up and has already hit the key 1.15 level in trading today as the euro is pummeled against the major currencies. The move higher for sterling is more related to euro weakness this morning as risk aversion is back in play on further concerns surrounding Greece. 

The failing on the sterling Bull Run against the USD was fuelled by renewed concerns raised by Fitch the credit rating agency on the UK’s fiscal deficit coupled with a blunt warning from Mervyn King on the health of the UK economy. 

Alistair Darling again repeated the need to cut the deficit but the rating agencies are focusing on changes introduced and not to be introduced- the general feeling is that the pre-budget has not gone far enough.

Focusing on UK data we have seen jobless claims come in better than expected and the official unemployment rate has fallen to 7.8% from 7.9%- very good news. 

No surprises from the BoE in their minutes as the MPC voted to keep rates and QE on hold with a 9-0 decision. They also indicated that yesterdays surge in CPI is most likely a blip and CPI levels should wind lower in 2010 and the February inflation report will offer more clues on the real status of inflation. 

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US dollar weakens on news

A combination of factors has caused a weaker US Dollar this morning. 

Firstly the market is still reacting to the disappointing US non-farm payroll data on Friday; the expectation was for a positive number at +10,000, however the actual came in at -85,000 for the month of December. 

This data after volatile markets led to a weaker US Dollar. This morning the Pound and the euro have gained further against the greenback with sterling heading towards 1.62 and the euro pushing back over 1.45. 

The weekend release of December Chinese trade data which came in above expectations is helping lift risk sentiment in the markets. Chinese exports rose 17.7% in December helping to reinforce confidence in the global recovery and lifting FX risk flows. 

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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 unemployment rate hits 26 year high

America's unemployment rate hit a 26 year high of 9.7 per cent after companies cut 216,000 jobs in August.

The Labor Department also revised job losses for June and July, increasing by 49,000 the number of jobs lost in those months.

The job cuts in August were not as severe as the 225,000 cuts expected by economists. In fact, it was the lowest number of monthly job cuts in a year. 

The Dow Jones industrial average rose 29.32 points to 9,373.93 while in London the FTSE 100 index added 64.91 points to 4,861.67.

But, the unemployment rate, which dipped to 9.4 per cent in July, ratcheted up because 73,000 workers who had previously given up looking for jobs started hunting for employment again, increasing the potential labour force.

US unemployment is expected to hit 10 per cent by the end of the year. The country has lost about 6.9 million jobs since the recession started in December 2007 and there are now 14.9 million unemployed Americans.

However, the August report confirmed the pace of cuts was easing from early this year, when nearly three quarters of a million jobs were lost in January.

The Federal Reserve warned on Wednesday that the job market was still "poor" and companies would remain cautious about putting on workers despite increasing signs of an economic recovery. 

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UK Jobless households hit highest level since 1997

The number of jobless households has jumped to a record of nearly half a million - the highest level since Labour came to power in 1997.

The figures, published by the Office for National Satistics (ONS), are the latest evidence of the heavy toll being taken on households by the recession, and prompt concerns about the potential dire impact of the economic slump upon children, with nearly two million now in workless homes.

The ONS revealed that the number of households including at least one person of working age but without a job has hit 493,000, an increase of 158,000 on a year ago and the highest number since 1997, when the data was first collected.

The rate jumped by 0.8 percentage points from a year earlier to 2.5 per cent. Remember Stalinist Brown's lie- the end of boom and bust?

The figures relate solely to households where all people are unemployed; that is, both available for work and actively looking for it.

Where jobless households with "inactive" people are included — housewives or husbands, students, the long-term or temporarily sick — the figure rockets to 3.3 million, a 240,000 increase on last year.

The rate among these households increased by 1.1 percentage points from a year earlier, to 16.9 per cent, the higest rate since 1999 and the largest year-on-year increase since 1997.

The number of children in these wholly workless households stands at about 1.9 million, up 170,000 from a year earlier.

The data comes a week after official figures outlined the grim outlook for young people while overall unemployment currently stands at over 2.4 million.

Data revealed that the number of "Neets" — young people not in education, employment or training — has risen to a record 959,000.

In total, 835,000 18 to 24-year-olds are Neets, up from 730,000 from the same time last year, while the number of unemployed school-leavers aged 16 and 17 who are not studying or training is 124,000.

Analysts have prediced the the total number of Neets could rise to more than one million in the third quarter. 

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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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US banks close as private equity evaporates

Seven banks were closed by the American banking regulator in one day last week.

The banks, including six in Illinois, were brought down by plunging property prices, bad loans and high-risk investments.

The bill to the Federal Deposit Insurance Corporation (FDIC), the country’s $49 billion bank deposit guarantor, for this round of failed banks was expected to hit $314.4 million (£194.4 million).

Coming on top of 46 collapses already this year, last Thursday’s failures — the most seen in a single day during the financial crisis — added a touch of urgency to the FDIC’s problem: how to offload these liabilities while not increasing the risks to its fund. “We want non-traditional investors,” Sheila Bair, the FDIC’s chairman, explained. “There is a significant need for capital and there is capital out there.”

The FDIC is funded by the banking sector and returns from its investment in US Treasury bonds. When a bank fails, the corporation protects customers’ deposits, usually up to the value of $250,000.

America’s recession has caused the number of bank collapses to rise steeply, increasing the FDIC’s interest in selling some banks to avoid pressure on its funds.

At the same time, the most likely buyers, from the private equity industry, have their own problems. According to Preqin, the data provider, private equity funds were sitting on a $1 trillion war chest at the beginning of the year — but they are unable to do the highly leveraged deals that they favour because banks are no longer offering big loans for buyouts.

So far, attempts by the FDIC to sell failed banks to private equity groups have been mixed. It sold IndyMac Federal Bank, of California, in January for $13.9 billion to a group of investors that included George Soros, Christopher Flowers and Michael Dell, the founder of Dell.

In May a consortium including Carlyle Group paid $945 million for Florida’s BankUnited Financial, which came with a guarantee that the FDIC would take most of the future losses from the bank’s existing books of business.

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US stocks slide on jobs report

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.

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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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Public borrowing hits record high of £20bn

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.

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Pound rises three cents to $1.64

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.

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Sterling hits six month high against the dollar

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.

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IMF forecasts recovery despite Eurozone GDP fall

The head of the International Monetary Fund (IMF) said today that he expects the global economy to recover in the first half of next year despite worse than expected figures from the eurozone economy showing that GDP shrank by 2.5 per cent during the first quarter.

The quarterly fall in GDP in the eurozone– a key measure of economic health – takes the annual decline to a record of 4.6 per cent across the 16 countries that use the euro.

Germany revealed the worst fall in GDP, shrinking 3.8 per cent over three months in its worst performance since reunification in 1990. Economists had forecast German GDP would contract by 3 per cent.

However, the IMF's Dominique Strauss-Kahn said that green shoots of revival are everywhere but he stressed that banks’ balance sheets must be cleansed before an economic recovery can take place.

While today’s figures are far worse than expected, economists said the quarter would prove to be a low point, with the slowdown set to ease in the coming months.

France, Europe’s second-biggest economy, reported that GDP shrank by 1.2 per cent on the quarter while Italy, the next biggest, fell 2.4 per cent.

Much of Germany’s contraction was due to a sharp decline in exports, which make up a large proportion of the country’s economy, and a drop off in investment. The dramatic plunge in output was the fourth quarter in a row that Germany’s economy has shrunk.

Moreover, officials said fourth quarter GDP, which was previously the worst on record, was revised down to a contraction of 2.2 per cent, compared with the previously reported decline of 2.1 per cent.

Germany is now expecting a 6 per cent contraction this year and is predicting growth of just 0.5 per cent in 2010.

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UK green shoots are trampled by Mervyn King

Sterling has slumped lower following yesterday's Quarterly inflation report by the Bank Of England emphasising a slow and uncertain recovery.

The inflation report is the first since the introduction of QE in March and the report was eagerly awaited to assess the inflation projections in the UK. Mr King was downbeat in his assessment of the UK economy and emphasized the uncertainty in the economy stating "it would be extremely unwise for anyone to claim they know what the future is to hold" and he also intimated that there would be no end to credit easing and interest rates will remain low for the foreseeable future.

So not particularly cheery from Mr King and this certainly takes the shine off yesterdays "green shoot" declarations from various economic pundits for the UK- in fairness a conservative approach is sensible to avoid the market trading on sentiment rather than reality.

Following the report sterling dipped from 1.53 against the dollar to 1.5139, against the euro sterling dropped from 1.1190 to 1.11. In other data from the UK we saw unemployment jump to its highest level since 1996 in a leaked report yesterday afternoon….the number of UK unemployed jumped by almost a quarter of a million in the first 3 months of the year taking the total levels to 2.2 million.

However manufacturing production fell by just 0.1% compared to expectations of a drop nearer to 1%- continued improvement in manufacturing production will be essential to drive growth and stop the rot of unemployment levels surging higher still…

Elsewhere, we saw China post a higher than forecast retail sales number but lower industrial output data….good news that the Chinese consumer is buying but they will hope to see an improvement in output soon.

One currency pair to watch is EUR/USD which earlier broke through 1.37 before retracing to 1.36- the increase in Oil to $60 per barrel driving this pair higher for now.

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UK unemployment hits 2.1m ahead of Budget for jobs

UK jobless numbers swell to the highest since Labour came to power in 1997 as 73,700 more people joined the dole queue.

The number of people out of work rose by 177,000 to 2.1 million in the three months to February, official figures showed today, as Alistair Darling prepared to outline his "Budget for jobs."

New jobs data from the Office National Statistics (ONS) was better than expected with the number claiming benefits rising by 73,700 to 1.46 million in March. The figure is a major improvement on February when the number of people claiming jobseekers' allowance rose by a record 138,400 to 1.4 million.

The figures were unveiled as Mr Darling prepared to unveil a Budget that will include a £2.5 billion package to guarantee work or training for every young person out of work for more than a year.

Thousands more Civil Service jobs will be lost over the next four years as departments struggle to find £45 billion in “efficiency savings” by 2013-14.

Alistair Darling will claim to be introducing a “Budget for jobs” today with a £2.5 billion package that includes a guarantee of work or training for every young person out of work for more than a year. The Chancellor will also back recommendations by five external advisers to find savings by cutting office space, selling property, privatising assets and sharing purchasing contracts across the Government.

The advisers recommend savings starting at £5 billion a year and rising to £15 billion annually by 2013-14. Suggestions include cutting office space by 30 per cent, through hot-desking, halving the size of the Land Registry and preparing the Royal Mint for whole or partial sale.

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UK unemployment jumps at fastest pace on record

UK unemployment last month jumped at the fastest pace since records began, driving the number of Britons without work to above 2 million for the first time since the Labour Government came to power in 1997.

Figures from the Office of National Statistics released today show 138,400 people joined the dole last month, pushing the number of unemployed to 2.03 million.

In a blizzard of terrible data, the number of people who began claiming jobless benefits in January was revised higher to 93,500 from 73,800. City economists had expected a jump of 84,800 for February and the month's increase is the fastest since records began in 1971, and leaves the unemployment rate at 6.5pc.

"Horrendous," George Buckley, an economist at Deutsche Bank, said of the numbers. "This is probably going to persist for a while as long as that kind of growth continues."

The news sent sterling tumbling more than a cent against the dollar to to below $1.39 and left it weaker against the euro, down more than a penny at 94p.

The UK is likely to lose more than a million more jobs over the next 12 months, according to a report from consultancy company Oxford Economics, with the north and the Midlands hit hard. Economists are worried that rising unemployment will sharpen the recession as those still in work cut their spending.

The Bank of England's David Blanchflower, the most prominent economist to deliver an early warning about the threat of recession, said last month that unemployment could top 3 million, or 10pc in 2010. He recommends the government spends billions of pounds on public works to create jobs.

Rising unemployment is being mirrored across the world's major economies, with an unemployment rate of 7.9pc in France, 7.2pc in Germany, 6.7pc in Italy and 7.6pc in the United States.

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Wise Money says it's not panic but reason that is gripping stock market investors

Jack Handey, the American humorist, might get what's going on. "If you ever catch on fire," he once said, "try to avoid seeing yourself in the mirror, because I bet that's what really throws you into a panic."

The point at which fear turns to panic is notoriously difficult to judge. Which is why the P-word is being used rather too glibly to describe the current mayhem in the equity markets. Investors are actually behaving quite rationally.

Companies confident of their future earnings pay a dividend. But look around you and what do you see? Some of the biggest companies in the world, including HSBC and General Electric, being forced to cut their pay-outs.

Worse, businesses that investors once thought were well capitalised – HSBC (again) and Land Securities, say – are passing the hat round for more cash. Their rights issues dilute existing shareholders.

Look out a year and is there much cause for optimism? More business failures, rising unemployment and asset writedowns do not look a recipe for soaring share prices.

Not only that. Demographics don't help. In the 1980s and 1990s, baby boomers bought up financial assets. Now they are retiring, they may sell them.

Equally, there is a growing recognition that corporate earnings are now much more volatile than they have been over the past two decades – and hence less valuable.

Investors know that markets always overshoot on the upside and downside. And that someone will make a fortune out of this crisis. But catching fire is no fun either.

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Recession worse than first feared, Bank of England's deputy Governor warns

The UK has an odds on chance of suffering an even deeper recession than first feared, the Bank of England's deputy Governor, Charles Bean, has warned.

The Bank last week predicted a near 4 per cent year-on-year fall in output as the credit crunch tightens its grip on the wider economy.

But Charles Bean told an audience in Birmingham there was "roughly a three in four" chance of growth even weaker than the Bank's already-gloomy central projections.

Lingering woes in the banking sector and nations shunning free trade in favour of protecting their own industries could hinder a recovery, according to Mr Bean.

He told the National Farmers Union: "It is possible that efforts to restore the banking system may take longer to bear fruit, and that the adoption of protectionist measures abroad as the downturn deepens may slow the recovery."

The deputy Governor admitted that a "failure of imagination" had been in part to blame for the wider economic carnage caused by a debt-driven boom in property and asset prices.

He said "no one really foresaw the virulence with which the crisis would unfold", but argued that keeping interest rates at a higher level between 2004 and 2007 "would just have implied markedly higher growth and higher unemployment at an earlier stage".

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No change in sentiment over the weekend

The US unemployment rate jumped to a 15 year high of 7.2% from 6.8%, thanks to a gigantic 806K plunge in household employment.

The consensus was for a rate of 7%. These numbers don't make such good reading and not the sort of background that the new US administration would like to have at the start of their term in office.

They will be hoping that the combination of zero interest rates, unconventional monetary easing and the massive $ 1 trillion fiscal stimulus will serve to turn the economy round. The rest of the world will have its fingers crossed as well.

This implies that data from the US this week will be largely ignored with anticipation of weak numbers rife but focus on the long weekend (ahead of the Martin Luther King Day holiday on Monday) and Obama's inauguration next week.

The releases are important however, especially the combination of Retail Sales and Consumer Sentiment and also Industrial Production. The latter is becoming especially watched with opinion growing that the severity of the recession has caused it to collapse to such a degree that the level of inventories is dangerously low.

Therefore this indicator might be the first to show the signs of some sort of recovery. there are several Federal reserve members scheduled to speak this week, including the Chairman Ben Bernanke. Their brief appears to be to talk on economic outlook and so these after hours occurrences could hold centre stage.

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New lows for Sterling

Another day and more record lows for GBP/euro are€“ currently at all time lows.

This cross is trading in uncharted territory and is struggling to find support with many expecting to see parity before the year is out. However, UK retail sales just out at better than expected levels (0.3% versus -0.6%) should lend support to GBP over today's session.

UK Unemployment out yesterday would not have helped GBP as the headline figure rose to 1.07m for November; a jump of 75,700 from October. This is the largest rise since 1991 and does little to quell fears of continued redundancies in London in 2009.

Japanese yen has also been in the headlines hitting record highs of 87.15 last night. JPY is currently trading at 87.68 and may well test yesterday's high again.

Japan's Central Bank meet tomorrow and there is speculation that they may well cut rates close to zero in an effort to stimulate their economy. Falling global demand has hit Japan's economy hard as they have such a export focus. Japan's rate is currently 0.3%.

Economists are also speculating about the ECB cutting deposit rates as soon as today in an effort to stimulate interbank lending. Cutting deposit rates (from current 2% on overnight cash) would make holding cash with the ECB less attractive and hopefully free up capital for consumers and companies and help the interbank market.

Ever since Lehmans collapsed banks have been very cautious about lending to one another. The Euribor (the euro interbank offered rate) set yesterday at 3.16 which is 66 basis points above the ECB rate.

In commodity markets, yesterday Opec agreed to cut production by a record 2.2m barrels per day but the price of crude oil has continued to fall. Oil has fallen by more than $100 from a record of $147 in mid July to current levels of $43.21 (Brent Crude in London). Opec has cut production three times since September and Opec accounts for 40% of the World's oil production.

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Credit crunch weighs wise money down

but it is Sterling that continues to bear the brunt of investor's concerns.

The headline in the The Times this morning caused a quick skip in the heartbeat, "Banks under the cosh as £1 tumble towards Euro 1". Wise Money wondered what on earth had occurred overnight !!!

As it happened, the headline was very much €˜for effect rather than based on the actual. Sterling is indeed at an all-time low against the Euro but over the past few days has actually stabilised at these levels.

The outlook remains clouded with a big danger of a further ratchet lower but as more dire news emerges from Eurozone, the prospect for a lower cross will diminish. On that note, the magnitude of the declines in both French and German industrial output, reported earlier in the week, were staggering.

This doesn't bode well for tomorrow's industrial output report for the whole of the Eurozone where the estimate is for a decline of 3.7% year-on-year. Somewhere down the line, probably not now until the New Year, there will be a re-assessment of exchange values with, in my view, the Euro being downgraded against all the majors.

We are now in the €˜dead-zone data wise with nothing scheduled to come from the UK or Germany for the next 2 days and only the Ind Prod number from the EU. The US and Canada are slightly more exciting but the whole pre-Xmas lull appears to be well and truly upon us. We do have the UK CBI monthly industrial trends survey later this morning but there are no prizes for guessing the mood of that.

As if to pre-empt the figure, the BoE's Kate Barker, in the Scottish Herald paper, lays the situation out - bleak on the economic assessment, with any recovery in the UK unlikely to be evident until the 4th Quarter of 2009, with the likely pace of recovery, very hard to judge.

Elsewhere the big news overnight was the Korean central Bank cutting their official rate by a massive 100 basis points to a record low of 3%. This €˜super-investor in US Treasuries has now cut rates from 4.25% in early October in an unprecedented series of reductions and cites the need to tackle the persistent credit crunch and help the economy to cope with the global downturn.

This morning, the Swiss National Bank have also further reduced their rates by another 50 basis points, bringing their target band down to 0 - 1.00%.

In the US, The House of Representatives agreed to a $14 billion interim loan to GM and Chrysler to tide them over. The affirmation of the bail-out, however, still requires a positive vote following the Senate debate on the matter later today. If passed, this would just sees the two companies through to March 31st the deadline by which they must file restructure plans (and even then they are not safe).

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Credit crunch weighs wise money down

Only time will tell, but there are increased mutterings that data for the 4th Qtr of 2008 might prove to be as bad as its going to get.

With the sharp falls in GDP forecasts for the €˜industrial nations, accompanying massive rises in unemployment, the outlook still looks grim. All the negatives however are starting to be countered by positive moves from the Governments with regards to fiscal stimulus in conjunction with the already seen, monetary easing.

The US, Canada and UK are all intent on kick-starting their economies through good-sized packages. The €˜almost agreed bailout of the Big 3 US car manufacturers goes towards proving this point.

Only the Eurozone appear to be dragging their collective feet and therefore it will be said region that will recover more slowly than the rest through a continued lack of demand. Even the VERY bad news is having less of an effect on markets.

The non-farm payroll numbers from the US on Friday were horrifically large with the figure coming in much, much higher than market consensus. Did this pull away the rug from beneath the Dollar?

Well not in the way that it would have done in years gone by. It shows that investors and traders are now fully braced for the severe recession and that tolerance for bad news is now far greater than has been seen up to now.

Looking ahead this week, top-tier data is lacking but several speeches by Fed Reserve members will be in focus as the FOMC meets next week. The Fed have signalled in the past that there is no floor for the Fed Funds rate and discussions over quantitative easing will likely re-emerge.

Elsewhere, the German ZEW survey tomorrow looks to be the highlight with the numbers expected to reinforce the opinion that the German and hence the Eurozone economies have further to decline before any sign of the green shoots of recovery.

From the UK, economic data is almost entirely focused on tomorrow when we get the BRC Retail monitor, trade numbers and industrial production.

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UK unemployment on the rise

Headlines, reading that 4,000 UK jobs were lost yesterday, have produced a raft of new estimates as to where the total number of unemployed will get to before this recession ends.

The consensus is that we will see a total in excess of 2 million imminently but from there it is anyone's guess. If anything, it makes the employment and earnings data, scheduled to be released at 9.30am today, even more relevant than the release of the BoE Quarterly Inflation Report at 10.30am.

That's not to say that the latter won't be watched with great interest but you have to feel that the content will have been anticipated and flogged to death in the press already. Unless there is something within the report that is totally out of synch with previous comment, one must assume the composition will be of concern on growth, rapidly falling inflationary pressures and worries of an undershooting of the inflation target in 12-18 months.

The unemployment numbers are expected to show an increase in people out of work of 35,000 giving a rate of 2.9% but I would not be surprised to see a higher figure of 40,000+ and 3%.

Really, it is difficult to see what sort of figures/statement can help Sterling in the immediate term with markets likely to view anything positive as a blip in the continued descent into the mire.

There are of course other things afoot around the globe following the near Global-wide Bank holiday for Armistice / Veteran's day yesterday.

Oil remains in the headlines with the recession led lack of demand keeping downward pressure on crude prices (WTI below $60 pb again to a 21-month low)) and talk of an additional emergency OPEC meeting, to try and cut production again, ahead of the scheduled mid-December get together in Algeria.

With the continued fall in demand it is difficult to see what OPEC can do. Keep their collective fingers crossed that there is a hard Winter, weather-wise, in the West and especially the US?

Following today's UK data, attention will shift to a raft of statistics coming from the Eurozone and its participant nations. Yesterday's German ZEW data gave a mixed message but by and large the current assessment still stinks.

Today we see Industrial Production estimates for September which are expected flat on the month with the danger on the downside.

Tomorrow the ECB will publish its monthly report for November which is likely to just put in print Trichet's prepared remarks at last week's post-Council press conference but on Friday we will see the preliminary estimates for 3rd Qtr GDP. This data is critical for the Eurozone. If, as seems almost certain, GDP turns out to have contracted again, then neither the ECB or anyone else will be able to argue against the fact that Eurozone is in recession.

This in turn will increase the likelihood that the ECB will cut rates regularly for the next 6-months until market rates reach the level with core inflation of about 1.75%.

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Weak US data worries wise money

Stocks suffer as a combination of weak economic and corporate news reinforced fears of a prolonged global recession.

Where to start; news from China showed that the economy there is in sharp decline removing any hope that China's growth will cushion the impact of the global downturn and reversed optimism sparked by China's announcement over the weekend of a huge US$600bn stimulus package.

Earlier corporate news from the US added to the gloom with Circuit City, the second largest electrical retailer in America, filing for bankruptcy protection, DHL announcing 10,000 job cuts and shares in the troubled car maker General Motors tanking to their lowest level since 1946 on fears that a bailout by the government will wipe out any remaining shareholder value.

Also weighing on sentiment was the announcement of a further cash injection by the US government in AIG to the tune of US$150bn after the ailing insurance company recorded a third quarter loss of US$24bn.

Fannie Mae, the nationalised, US mortgage finance company also reported a massive loss in the third quarter amounting to US$29bn, with repossessions running at a total of 67,519 homes, equivalent according to the Times to a town the size of Dayton, Ohio!

More disappointing news on the UK housing market came from the Nationwide Building Society when it announced that its net mortgage lending plummeted 70% over the last six months and warned that the whole UK mortgage market would fall by 80% this year.

Home sales continue to fall according to the latest survey from the Royal Institute of Chartered Surveyors (RICS). If this was not bad enough the British Retail Consortium said that retails sales fell for a fifth straight month in October down 2.2% the biggest decline since May 2005.

It would appear that more time is needed before the effects of last week's 1.5% cut in interest rates by the Bank of England kicks in but no doubt this data will increase the pressure on Gordon Brown and to deliver meaningful fiscal measures to reinforce the monetary stimulus provided by the central bank.

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Figures confirm US heading towards recession

Preliminary GDP data released yesterday showed that the US economy contracted 0.3% in the third quarter, its sharpest decline in seven years, as businesses and consumers reigned in spending as fears of a recession took hold.

The market consensus was for a decline of 0.5% so although the 0.3% contraction was the steepest decline since Q3 2001 it was not as bad as expected.

Continuing job losses coupled with declining gains from stocks and other investments have put consumers under severe stress. The GDP report showed that disposable personal income dropped 8.7% in the third quarter after rising 11.9% in the second quarter boosted by the US government's economic stimulus payments.

US Initial jobless claims for the week ending 25 October was left unchanged at 479k, above market expectations for a decrease to 475k. This compares to the revised 479k reading seen in the prior week (prev. 478k)

The Bank of Japan cut its interest rate by 20 basis points to 0.30%, less than the 25 basis point cut widely expected. The yen strengthened however on renewed investor concerns over riskier assets.

Asian equity markets returned to negative territory after a week of gains reflecting the gloomy outlook that persists despite interest cuts.

This morning a report showed that German retail sales fell 3.1% in September after a rise of 3.3% in August, some turn around and underpins expectations that the ECB will cut interest rates next week.

Gold slipped $3.75 per ounce to $731.75 and is on course for its biggest monthly decline since 1983, as oil also fell on recession fears forcing investors to cash in to stem losses.

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Stock markets remain main point of focus

Following the minor euphoria from the Joint activities last week, Stock markets again seem to be the main point of focus on the downside.

With further fears of recession, following poor British unemployment data (5.7%, its highest level in eight years), the Fed's beige book reporting weakened economic activity across all states and the U.S. government reporting retail sales falling 1.2% in September (biggest monthly decline in 3 years) this may have been enough to turn the markets negative.

But to ensure the markets did not stay positive/confident for too long Mr Bernanke stated that a marked slowdown will be seen in spending, investment and jobs. Also that market turmoil is a significant threat to growth.

These recession fears led to risk -averse selling with the US dollar benefiting from the purchase of U.S. assets, with the Dollar heading back down.

Also during New York trading we saw the Skandi currencies hit 2 yearly highs against the dollar overnight and this morning EUR/SEK hitting its highest ever official level over 10.000 to 10.1440 due to the lower risk appetite and low liquidity in periphery currencies

This morning we have seen an announcement that Switzerland's two largest banks (Credit Suisse and UBS) will receive billions of francs of emergency funding from the country's government and other investors to shore them up against the financial crisis.

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The road to recovery

The US Treasury announced yesterday that it will spend at least $250 bn on preferred equity from major financial institutions.

The plan is in some ways a turnaround for the government which initially seemed to be focusing on the $700 bn programme authorized by Congress on buying up illiquid assets that were clogging the banking system.

German's ZEW sentiment survey released yesterday reflected a deterioration in confidence in September, the height of the financial crisis.

The ZEW said that perspectives for economic development have significantly deteriorated due to the financial crisis but a separate analysis following the bank rescue package reveals a less pronounced decline in expectations.

In the UK CPI released yesterday posted a higher than expected 5.2% - the highest since 1997. Whist on the surface a high reading may be deemed to be problematic for the Bank of England the MPC's focus seems to be shifting to that of growth concerns as inflation is forecast to cool by mid-2009.

In the same breath, UK unemployment rose to the highest level in almost two years, slightly ahead of expectations as market participants forecast a significant deterioration in the labour market.

Risk appetite continues to play a significant role in the market, whether it be equities, cash, commodities or currency. Sentiment for sterling remains positive as the UK government continues to lead the way in dealing with the current challenges in the market.

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Sentiment is mixed as volatility continues

There was mixed sentiment in the markets on Friday as the House of Representatives voted 263-171 in favour of the $700 billion financial rescue package.

The bill, which had been rejected on Monday, was formally approved after $149 billion in tax breaks were added to the proposal. It means that the US Treasury now has the power to purchase toxic assets from banks, in an attempt to stabilise financial markets. Stock markets had rebounded early on Friday but then started to turn negative as the economy took centre stage.

US payrolls plunged in September, recording the biggest monthly decline in five years. Although the unemployment rate remained at 6.1%, the 159,000 job cuts added to the growing fears of weakening global activity. The Dow and S&P500 closed 157 and 15 points lower at 10,325 and 1,099 respectively. While the FTSE managed to hold on to some of its gains, posting a 110 point increase to finish at 4,980.

Weaker than expected data on the UK service sector has led to an increased number of economists predicting that the BoE's monetary policy committee will cut rates this week.

The PMI services headline index, which was released on Friday morning, dropped to 46 in September against an expected reading of 48 and lower than August's 49.2. It led to the number of economists expecting at least a 25 basis point cut increasing to 47 out of 61 compared to just 21 earlier in the week.

The rapid deterioration in data over recent weeks has provided further evidence of the gloomy outlook facing the world's major economies, causing some to call for the central banks to deliver coordinated rate cuts. Although this seems unlikely, there is an increased possibility that the MPC, FOMC and ECB will all reduce their respective target rates in quick succession.

Particularly after Trichet informed the markets, in his post announcement conference, last Thursday that the ECB's council members had considered cutting rates at its meeting.

Away from monetary policy, Europe's central banks have committed to further liquidity operations as they endeavour to kick start money markets. Overnight rates tumbled in the days that followed the third quarter end, while term rates remained elevated in a sign that stresses beyond the one day period now exist more than ever.

The Bank of England announced that it will offer £40 billion of three month funds to banks and except a wider range of collateral, staring today. At the same time the European Central Bank will increase the number of banks that have access to its fine-tuning overnight auction to 1,700, from the existing 130.

The euro slumped to its lowest level in over a year against the US dollar and sterling recorded its biggest decline since October 1992, after dropping 4 percent last week.

It would appear that markets now feel there is more bad news to price in for the UK and euro zone, which is likely to weigh on the respective currencies. However the Pound did manage to move to the highest level in seven months against the euro.

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Uncertainty and weak data weigh on markets

Another day of uncertainty surrounding the US government's $700 billion financial rescue plan coupled with the worsening global economy weighed on markets yesterday.

European stocks which had been in positive territory were dragged down by Wall Street stocks as investors fell prey to the concerns enveloping US markets. The FTSE100 lost ground in afternoon trading to post a 1.8% decline, the Dow and S&P500 finished 3.2% and 4% lower respectively.

It would appear that market participants are becoming cautious that even if the bailout bill is passed, it may do little to affect the rapidly weakening global outlook.

Republican leaders are currently attempting to persuade their party members to back the rescue package before it is put to vote in the House again this Friday. While the democrat party may be reluctant to take the bill before lawmakers unless they are sure of success. However, recent comments would suggest that there is more chance of the bill being passed than not.

The first data release from the US showed there was no change in the direction of US jobless claims, which increased to 497k from the previous weeks 496k. This is the highest level in seven years and offers an indication of how the financial turmoil is hitting the real economy.

Lower than expected factory orders also signalled that the US economy is grinding to a halt as businesses pullback spending. The 4% drop for August was the most in almost two years.

The European producer price index provided more evidence that inflationary pressures are easing in the euro zone. Prices rose 8.5% in August from a year earlier, compared to last months 9% increase and the monthly figure dropped 0.5%.

Data from Nationwide illustrated the largest decline in UK house prices since the survey began in 1991. The year on year number came in at -12.4% and the monthly number at -1.7%.

After the European Central Bank announced their decision yesterday to keep the benchmark rate at 4.25%, Trichet said that the financial market turmoil is dampening economic growth and inflation risks have diminished. Having taken a while, it appears that the governing council has finally changed sentiment and it could be suggested that this is a clear sign that a rate cut is in the pipeline. Possibly before year end.

Trichet's comments helped the euro to a 13 month low against the dollar, declining for a fourth consecutive day against the greenback. The pound looks to be heading for a 4 percent drop against the dollar this week. Sterling is little changed against the euro.

Crude oil continued its fall yesterday. The November Nymex futures contract has declined 13 percent so far this week and it is difficult to see any upside given the likely slowing in demand as the US flirts with recession.

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