WISE MONEY

The Bank of Japan (BOJ) has announced emergency measures to boost lending aimed at combating the rising value of the yen.
Following an emergency meeting, the central bank said it would increasing lending to commercial banks by 10 trillion yen ($117bn; £75bn).

The measure is designed to stem the value of the currency, and boost lending to businesses.

Meanwhile the Japanese government has announced its own plans for a 920 billion yen stimulus package.

Prime minister Naoto Kan said ministers had agreed a plan to fight the rise in the yen, as well as to try and counter weakness in some economies – especially the US and in Europe – that buy Japanese goods.

Analysts fear the rising yen is undermining the country’s fragile economic recovery.

When making their plans for the year, many companies had been betting on the yen staying at about 90 to the dollar. So when it hit a 15-year high of 83 yen, it bit deeply into their profits.

A strong yen makes exports less competitive overseas. It also reduces the value of profits made abroad when they are repatriated to Japan.

In a statement, the BOJ said its decision to boost its low interest bank loan programme meant 30 trillion yen was now available for lending.

“The bank believes that the monetary-easing measure, together with government efforts, will be effective in further ensuring Japan’s economic recovery,” it said.

The BOJ hopes that increasing the amount of loans available will reduce market interest rates, curbing rises in the yen.

Last week the currency hit a 15-month high against the dollar – potentially a significant problem for the Japanese economy which relies heavily on exports for growth.

Financial bets against the Pound Sterling have fallen significantly since the emergency Budget – with hedge funds and speculators closing their positions that expected falls in the value of sterling.
In the seven days following the emergency Budget, the number of short positions in sterling fell from 62,267 to 52,397, according to data compiled by the US Commodity Futures Trading Commission.

The number of long positions increased slightly over the same period from 15,921 to 17,626.

The data is based on the activity on the Chicago Mercantile Exchange, which, despite accounting for a fraction of the daily turnover on the world’s currency markets, is seen as representing the wider market.

Short selling of the Pound hit record levels following the formation of the coalition Government with the number of sell contracts reaching 76,745 amid fears that political uncertainty would hamper attempts to tackle the deficit.

But sterling has risen sharply against the dollar over the past month. The pound is up 8 cents or 5.7pc against the dollar since hitting a low of $1.43 on June 8. Yesterday it closed up 0.75 cents at $1.517.

Wise Money urges a note of caution- whilst Sterling’s outlook has improved in the past month, the balance of speculators still hold a net short position by a factor of three to one.

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Your pile of foreign euros left over from your last European holiday might not keep it’s value for the future.
With the ongoing currency and european credit crunch, not all euros are the same and some might be worth more than others in the future.

Each euro banknote’s serial number tells you which country created it.

Worries about sovereign states’ differing abilities to repay their debts prompted world leaders at the G20 Summit in Toronto to pledge they will half their national budget deficits by 2013. But translating words into action will be a more difficult challenge for some than others.

For a few, the challenge could prove simply impossible.

Now rising fears about southern European countries’ financial stability mean it could pay to be able to read the code on your euro.

Some Germans are already insisting on holding on to euros issued in their own country and passing on those backed by southern states. They know from not too distant history what it feels like to be left holding worthless paper which used to be official currency.

All euros are backed by the European Central Bank but the serial numbers prefixed with X may be regarded as most secure because they are issued by Germany. N is also a good prefix, because these come from Austria. P, L, U and Z prefixes may also be favoured because these are issued by the authorities in Holland, Finland, France and Belgium.

Code     Country
Z            Belgium
Y           Greece
X           Germany
V          Spain
U          France
T          Ireland
S           Italy
P           Holland
N          Austria
M         Portugal
L           Finland
H          Slovenia
G         Cyprus
F          Malta
E          Slovakia

If you share widespread fears that the euro cannot last in its present form, you might want to avoid notes with the prefixes F, G, M, S, T or Y. These are issued by Malta, Cyprus, Portugal, Italy, Ireland and Greece- highlighted.

If you have some euro cash left over from your last holiday then Wise Money has a great value euro cash exchange service which includes home/ office delivery service.

The euro will have broken up before the end of this Parliamentary term, according to the bulk of economists taking part in a wide-ranging economic survey for The Sunday Telegraph.
The euro is facing its worst crisis since it was founded with the survey’s findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full blown crisis in Britain’s biggest trading partner in his first years in office.

The single currency is in its death throes and may not survive in its current membership for a week, let alone the next five years, according to a selection of responses to the survey – the first major wide-ranging litmus test of economic opinion in the City since the election.

The findings underline suspicions that the new Chancellor, George Osborne, will have to firefight a full-blown crisis in Britain’s biggest trading partner in his first years in office.

Of the 25 leading City economists who took part in the Telegraph survey, 12 predicted that the euro would not survive in its current form this Parliamentary term, compared with eight who suspected it would. Five declared themselves undecided. The finding is only one of a number of remarkable conclusions, including that:
• The economy will grow by well over a percentage point less next year than the Budget predicted in March.
• The Government will borrow almost £10bn less next year than the Treasury previously forecast, despite this weaker growth.
• Just as many economists think the Bank of England will not raise rates until 2012 or later as think it will lift borrowing costs this year.

But the conclusion on the euro is perhaps the most remarkable finding. A year ago or less, few within the City would have confidently predicted the currency’s demise.

But the travails of Greece, Spain and Portugal in recent weeks, plus German Chancellor Angela Merkel’s acknowledgement that the currency is facing an “existential crisis”, have radically shifted opinion.

Four of the economists said that despite the wider suspicion that Greece or some of the weaker economies may be forced out of the currency, the most likely country to leave would be Germany.

The recent worries about the euro’s fate followed the creation last month of a £691 billion bail out fund to prevent future collapses. Although the fund boosted confidence initially, investors abandoned the euro after politicians showed reluctance to support it wholeheartedly.

The euro has continued sliding against the US Dollar, reaching it’s lowest level in four years.

Concerns remain about the massive bailout package announced by the EU and IMF last week and how effective (or not) it might be in addressing the core issue affecting troubled EU member states, namely huge fiscal deficits.

The ECB have been intervening directly in secondary bond markets, bringing some well needed stability and halting the huge volatility in yields over past couple of months.

The side effect of the ECBs intervention has been to move all traders with negative view of the Eurozone from the bond market to currencies, and with EU officials publicly announcing the need for a weaker currency, it looks like a one way bet at the moment.

Most of the financial press over the weekend were calling for parity in EuroDollar, but if the market is oversold we may see a short squeeze over the next few days before the Euro moves lower again.

The new UK Government is indicating that is making deficit reduction a priority, Chancellor George Osborne has just announced £6bln of savings the details of which will be announced next Monday.

The emergency budget promised by the Tories in their manifesto will be on the 22nd of June and the Office of Budget Responsibility (newly created by the Conservatives) will publish economic forecasts before the EM because Osborne think the market has completely lost confidence in the current Treasury forecasts (3.5% growth next year does seems on the high side).

Sterling has rallied on the back of this but market sentiment seems still to be for further falls in Sterling against the Dollar- which has reached 1.45- from 1.50 only a week ago.

Billions wiped off global markets with Greek bailout fears spreading to Portugal, Italy and Spain.

Wall Street suffered one of its worst falls in a single trading session yesterday, with mounting concerns that the sovereign debt crisis in the eurozone will not be confined to Greece.

In one of the most frenetic trading sessions in memory, the Dow Jones industrial average fell by 500 points in a matter of seconds at one point, prompting an investigation by the New York Stock Exchange.

At its worst point, the Dow fell by just under 1,000 points or more than 9 per cent— which would have represented the biggest one day fall in 17 months.

The market immediately rebounded, raising speculation that the falls had been caused by a “fat-fingered” trader who had entered an erroneous transaction, although the New York Stock Exchange was quick to point out that the fall was largely due to programme trading.

About $16 billion worth of stock changed hands during the burst — suggesting that genuine trading activity was behind the fall and rally.

Other markets also saw some spectacular lurches, with US crude oil futures for June delivery collapsing by just under 4 per cent to $76.70, its lowest level since February. Amid signs of safe-haven buying, gold prices also hit a record high.

Earlier the euro fell by more than two cents against the US dollar. Having traded at $1.2856 earlier in the session, the currency fell to as low as $1.2653 in the late afternoon, after the European Central Bank (ECB) killed hopes of early action to limit the crisis.

The euro has continued to crash against the US Dollar, reflecting the continued loss of investor confidence in some European economies.

The euro has fallen to $1.2954 – its lowest level for more than a year.Share markets in Asia also dropped after heavy falls in Europe on Tuesday. The Singapore market was down 1.5% and Hong Kong’s Hang Seng index fell 2.1%.

Investors remain concerned over the debt crisis in Greece, and the fear that it may spread to other economies.

On Tuesday, the Spanish Prime Minister Luis Rodriguez Zapatero was forced to deny rumours that Spain would be next to seek financial rescue, following the agreement of a 110bn-euro ($143bn; £95bn) bail-out package for Greece over the weekend.

Meanwhile Germany’s Chancellor Angela Merkel called on the country’s parliament to back a Greek bail out.

“The future of the European Union and the future of Germany within the EU is at stake,” she told law makers.

Investors have cited Spain, along with Portugal, Ireland and Italy, as the eurozone economies with the most worrying debt problems next to Greece.

Spain and Portugal’s cost of borrowing on the bond markets rose again on Tuesday, reflecting investors’ fears of default.

Spain is of particular concern because of the size of its budget deficit – currently above 11% of GDP – and the weakness in its economy.

Spain has the highest rate of unemployment in the eurozone, at above 20%, and the economy is expected to shrink by 0.6% this year.

On Tuesday, global stock markets also felt the impact of the uncertainty, with the FTSE 100 in London falling more than 2.5% and Wall Street’s Dow Jones index down 2%.

There is also scepticism over the chances of success of the Greek rescue plan, with the necessary cost-cutting measures in Greece proving domestically unpopular.

Today sees the beginning of a huge general strike in Greece in protest at public sector cuts.

Meanwhile Greece’s bail-out package is yet to gain European approval, with the German parliament due to vote on the deal on Friday.

The Greek debt crisis is spreading “like Ebola” and Europe must act now to protect the stability the financial markets, according to the Organisation for Economic Co-operation and Development (OECD).

Europe’s fiscal crisis worsened yesterday as news broke of Standards and Poor’s downgrade of Spain’s sovereign credit rating to AA.

This action has fuelled fears of contagion spreading through the Eurozone economies with a politician from Germany’s Green party letting slip that Greece’s revised bailout package could be worth €140bn over 3 years.

Analysts are warning of a financial crisis to the extent of the panic caused by the collapse of Lehman Brothers in 2008.

Comments from German chancellor Angela Merkel stating it was a “mistake” for Greece to be allowed into the single currency helping to fuel the discord.

Reports yesterday stated banks and pension funds sold euros at the fastest pace since the second half of 2008, when the currency plummeted 25 per cent over 3 months. With S&P taking the umbrella away as soon as it starts to rain, investors and politicians will surely be curious as to who will follow Greece, Portugal and Spain with a downgrade.

The yield on Portuguese 10-years bonds is the highest since 1997 while the spread on Spanish debt is the most in a year. The premium on Greek bonds, which were downgraded to a junk rating, fell yesterday to 9.97 per cent after talk of a more generous bailout eased pressure.

The euro has suffered an 11 percent decline in the past 6 months making it the worst performer among its 16 most-traded peers. It hit a near 12 month low against the dollar dropping below 1.32

With Iceland’s volcanic ash cloud causing the postponement of Greek officials planned meeting with the IMF yesterday, the Hellenic Republic will be back in the spotlight with a planned 3 month Treasury bill auction today.

Spreads between German and Greek bonds reached a Euro lifetime high on Monday, pushing Greece’s borrowing costs higher and prompting comments from Financier George Soros that Greece may face falling into a “death spiral” of recession and falling government revenues unless their borrowing costs start to fall.

Sterling fell yesterday across the board as new polls suggested a surge in support for Nick Cleggs Liberal Democrats, taking them to second place behind the Tories and ahead of Labour.

If these polls turn out to be mirrored at the election, the first past the post British electoral system would mean Labour would still be the largest party in parliament but to form a Government would need the support of the Lib Dems. Reform of this system is likely to be a condition that Nick Clegg would require before forming any coalition.

In America, the Securities and Exchange Commission announced on Friday that they would charge Goldman Sachs (GS) with mis stating and omitting facts relating to the marketing of subprime collateral debt obligations. GS share price fell 13% on the news and was followed by widespread weakness in other banking stocks leading to a bout of risk aversion and the corresponding rally in the dollar as investors moved back into safer havens.

On a positive note, Citibank announced strong first quarter results yesterday sending their shares higher and sparking rumours that the US may start to sell off it’s stake of the coming months.

On a busy day for central banks, the Reserve Bank of India raised rates by 0.25%. The move was widely expected with inflation running in double digits. The Central Banks of Canada and Sweden are also meeting today although both are expected to leave rates unchanged.

In a weekend packed full of big european stories, Greece yet again dominates the news this morning.

Eurozone politicians clarified the details of up to €30 Billion in loans at 5%, significantly less than current market rates of 6.98% that will be made available to the Hellenic Republic.

Greek officials were quick to point out that there no plans to use the bailout money – with a planned auction of €1.2 billion of Government debt tomorrow. If, as is likely, there is weak demand or they fail to place the bonds, the Greeks will almost immediately have to go cap in hand to the Eurozone and IMF.

In the meantime, the euro has surged on the news, hitting 1.37 against the dollar and 1.1296 vs the Pound.

Terrible news for Poland over the weekend. Polish President Lech Kaczynski was killed along with a number of top Polish officials including the Central Bank Governor and army chief in a plane crash in western Russia on Saturday.

Although trading has been dominated by events on this side of the Atlantic, in the US on Friday US Stocks continued to rally and the positive data flow continued. Wholesale inventories rose 0.6% with January’s figure also revised upwards.