WISE MONEY

The 3.9 per rise in British private car sales in June announced this week was hailed as a great success. It was clear evidence that the labour Government’s “bangers for cash” car scrappage scheme and other efforts to revive the economy were starting to work.

Big deal. In China, June car sales were up whopping 48 per cent. Now that’s what I call a stimulus.

It just shows what you can do when you own the banks. Yes, I know we own our banks, too, but that’s different because labour are too incompetent- and broke to do anything that really works.

When China decided it needed a stimulus package, it chose to create one by ramping up government spending and opening the lending spigots.

Bank chiefs were told to flood the economy with credit and competed with each other to get the most money out the door. The result was a tidal wave of cash, with bank lending in June twice the level in May.

The authorities are now worried about inflation, a property bubble and future bad debts. But it has kept the economy growing at a decent lick despite the slump in exports. This is good news for many foreign companies, particularly carmakers. Jaguar Land Rover will this year sell many more than the 12,456 vehicles it shifted in China in 2008.

But China’s growth may actually be a net negative for Britain in the short term because of its impact on commodity prices. As Barclays Capital pointed out in a recent report, the effect of Chinese growth on the price of oil and metals seems disproportionate to its share of the world economy.

For the British economy, the near-doubling of the oil price in the past six months is a high price to pay for selling a few more Jags.

Although the oil price has fallen back by more than $10 a barrel in the past two weeks, economists warn that at above $60 it is one more reason to be nervous that flickers of life in the British economy could be snuffed out.

Recent signs have been discouraging, notably the 0.5 per cent fall in factory output in May published this week.

Against this background, yesterday’s decision by the Bank of England’s Monetary Policy Committee not to extend its quantitative easing programme was a surprise.

The purchases of bonds using newly created money have had limited impact so far.

The Chinese are clearly storing up serious potential problems in the future. But the British economy is still in such a fragile state that there remains more risk in doing too little than too much.

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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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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.

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tensions on the Korean Peninsula showed no signs of easing after the UN Security Council criticized North Korea’s test of a nuclear bomb as a “clear violation” of international bans. But the country’s defiance continued with reports saying it would likely step up its weapons testing by firing short-range missiles this week.

While hurting sentiment in the short term, the standoff was more an excuse to take a breather from the recent rally, analyst said.

Caution ahead of upcoming economic reports in the US, as well as Wall Street and British market holidays Monday, also left investors with few reasons to set a course one way or the other.

Japan’s Nikkei 225 stock average fell 19 points, or 0.2pc, to 9,327.82, while Hong Kong’s Hang Seng rose 19.91 points, or 0.1pc, to 17,141.73 in an erratic session.

In South Korea, the Kospi was off 2.4pc at 1,367.02. The benchmark dived over 6pc on Monday on news of North Korea’s nuclear test before recovering nearly all its losses.

Elsewhere, Shanghai’s index lost 0.1pc, Australia’s benchmark was up 1.1pc and Taiwan’s market dropped 0.8pc.

Both US and British financial markets were closed Monday for holidays. European markets finished little changed on Monday.

With investors eyeing key US economic reports this week, including home sales, big-ticket manufactured goods and consumer confidence, Wall Street futures pointed to a slightly lower open on Tuesday.

Oil prices fell Asia trade ahead of OPEC’s meeting this week, with benchmark crude for July delivery trading at $60.93 a barrel, down 74 cents from overnight trade.

The dollar slipped to 94.66 yen from 94.84 yen, while the euro was lower at $1.3976 compared to $1.4003.

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.

Over in the US the feel good factor continues as the Treasury Secretary Geithner adds to the growing belief that we have turned the corner.

This, added to bullish global economic data and further comments from the US gave the Stock Markets a real boost, pushed the oil price up above $60 per barrel again and caused the Dollar to ease against the majors.

Positive data included a rise in Japanese consumer confidence and better than expected export figures from the EU.

We then got ‘reasonable’ numbers from the US including strong trading performance from Lowes, a major company whose business is directly related to the house building industry.

Financial stocks added to the positive sentiment following news that Goldman Sachs, Morgan Stanley and JP Morgan had applied to the Treasury for permission to repay their TARP borrowings.

The Reserve Bank of Australia gave a moderate assessment of their domestic situation and questioned the need for a further cut in their interest rates at the May meeting. AUD strengthened slightly following an earlier dip on the Chinese steel directive.

And in a further sign of a global shift away from the US Dollar as a trading medium, Brazil and China have agreed to work towards using their currencies in trading transactions rather than the greenback.

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.