WISE MONEY

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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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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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.

The signs initially look good with a determination to do the right thing and do it early. A feel good factor might easily spread very quickly through the country and filter to a stronger Dollar over the coming months.

The assistance to both Banks and economies being pledged by Governments worldwide is also being viewed as positive with expectations that it will directly enhance Corporate earnings which in turn will boost equity markets.

On the downside, the situation in the world’s largest financial institutions is still very unclear. Further assistance for Bank of America and a restructuring at Citibank at the end of last week plus the release of the details for the next UK bank bail-out plan, this morning have done little to alleviate concerns in Financial Markets.

One interesting result of the economic downturn is the widening disparity between the price of Brent crude and West Texas Intermediate oil prices given that the product is essentially the same.

As the historic global benchmark for crude, WTI always enjoyed a bit of a premium over Brent but with recent massive oversupply in the commodity, this has dissipated and reversed. Recently oil traders have been pricing some of their deals against contracts other than the WTI as they claim that the price is being adversely distorted by record inventories at its landlocked delivery point.

Until economic activity begins to pick up again, this differential looks likely to remain.

Focusing on currencies, today we have seen some of the recent Sterling sheen being worn away. Given that the Euro is as weak as last week then this can viewed as a shift away from sterling short term investments and can likely be directly attributed to a knee-jerk reaction to the Government’s latest Bank bail out plan. Sterling will probably reverse this move during the week. All else quiet given the shortened trading day.

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.

Going back a few hours, Mervyn King, fronting the BoE at their release of the Quarterly Inflation Report, made it very clear that the Bank views the risks in the economy at present to be growth or rather the lack of it.

He stated that inflation next year would fall to 1% with a possibility of it actually going negative in the 12-18 month timespan. This meant that interest rates would be cut further and sooner rather than later. HSBC this morning are calling for a 50bp cut at each of the next 4 MPC meetings.

Personally, I think that is too much. I can see real interest rates being cut to zero but with core inflation still sitting at a tad above 2% and not really moving, I feel a further 100bp cut would be ample.

Talking of Money Markets, the coordinated rate cut that I earlier mused might follow this weekend’s G20 meeting in Washington is still on the cards even more likely should tomorrow’s Eurozone GDP figure come in as dire as is being predicted. Let’s get the cuts out of the way and we can all settle down to enjoy the festive season.

In the US, Paulson is still fiddling with his Banking rescue package, now deciding that the fund will not be used to buy distressed assets but rather, and in line with European examples, to purchase stakes in Financial Institutions.

This marks a complete u-turn from the original announcement and could be the catalyst that starts freeing up the lending within the US.

Oil remains on a slippery slope with Brent crude at one point, a whisker away from $50 per barrel. As has been made clear in the past, cartels don’t really work during a period of rapidly declining prices.

Although OPEC talk a good game, cutting production quotas in order to put a floor under the price, the fact is that the smaller members maintain or even increase production in order to sustain their revenue.

What else? Oh yes, cable plunged through 1.50 on its headlong rush down and the Sterling Trade Weighted Index fell to a 12-year low this morning as traders took on board the BoE comments from yesterday. We saw a low of 1.4807 in USD/Sterling and 1.1919 in Sterling /Euro.

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This was not reflected on Wall street where the Dow Jones Industrial average closed up more than 4 percent on the day. This was underpinned by positive earning signals from companies such as IBM, Google and Advanced Micro Devices.

There was also a feeling from some investors that certain stocks are cheap at these prices.

On the currency front, price movements remained volatile with poor liquidity , making it hard to find any near-term direction.

The US Dollar sagged against the euro but held steady against another perceived safe haven currency the Japanese Yen.

Sterling has climbed slightly against the Euro but has no real impact on the Dollar. At the time of writing Sterling/Euro trades at 1.2895.

Overnight oil rose more than $3, rebounding from a 15-month low below $70 on a late rally on Wall Street and growing expectations of an OPEC production cut.

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.

American stocks shed nearly $900bn in market value with the S&P; 500 falling for a seventh consecutive day, the longest spell of intraday declines since 1996.

The Dow Jones Industrial Average closed below 9,000 for the first time in five years.

Tokyo witnessed its largest one-day drop since 1987 as the Nikkei fell 9.6% while the Hang Seng hit a three year low. Shares in Australia slid 8.3%.

In currencies, Sterling fell against the Dollar and Euro amid concerns over the UK economy after the IMF delivered its verdict that the UK could be one of the countries hardest hit by the global downturn.

The Yen fell following a return into high yielding currencies on the back of Tuesday’s concerted rate cuts by central banks. Three month Libor has continued to rise slightly despite the coordinated action.

Oil prices decreased yesterday to $87 a barrel while the price gold fell below $900.

G7 ministers meet today to discuss measures to address the lack of confidence in the global economy. Thus far the action taken to restore market confidence has failed to yield any significant positive results, reflected in the falls in equity markets and high Libor rates.

There is market speculation that Alistair Darling may propose the option of other nations guaranteeing lending between banks in an effort to ease markets.

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.

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.

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.