WISE MONEY

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

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

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

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

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

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The benchmark FTSE 100 index dropped 41.49 points – or 0.9pc – to 4,713.97, meaning it shed 0.4pc during the week. The index had increased steadily over the previous four weeks, sparking hopes that the worst of the bear market had now been consigned to history.

But in what experts described as a key signal to sell, it emerged that the dividend yield on the FTSE All-Share index has dropped beneath the yield on the benchmark 10-year gilt.

This technical threshold is regarded as an indicator of more subdued times on the stock markets. When the two levels last crossed in the other direction late last year, it was seen as a signal that the bear market could be drawing to an end.

The FTSE has had one of its most sustained spells of strength in history over the past few months, amid hopes the unprecedented support measures put in place by the Treasury and Bank of England could end the recession sooner than originally anticipated.

However, this week has brought with it more equivocal news about the economy, with the Bank warning in its Inflation Report that the recovery is likely to be slower and more protracted than many had anticipated.

Indeed, the yield on two-year gilts has hit its lowest level since 1992, amid fears that the UK recession may have further to run.

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.

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.

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 FTSE 100 index lost 111 points, or 2.6pc, to 4,234 – its lowest level since April.

Only four companies in the blue-chip index managed to end the day in positive territory as a drop in commodity prices knocked mining and oil companies.

The oil price fell $1.92 to $67.27 a barrel, and the price of copper fell more than 5pc to a three-week low on the London Metal Exchange.

In America the Dow Jones was down 2pc to 8,370 in mid afternoon trading.

Investors were shaken by a report from the World Bank which warned that the global economy would fall 2.9pc this year before rebounding in 2010.

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 bounce in Financial stocks in London (led by Barclays – when was the last time we saw a Bank share leap nearly 75% in value on a single day?) saw Europe take the lead and give Wall Street a boost on opening.

US stocks’ recent roller-coaster trading ended at a high with strong support when Pfizer’s announced its final plans for their $68 billion takeover of Wyeth.

The rally was underpinned by strong economic data with an unexpected increase in existing US home sales. These factors were just enough to offset further grim corporate news, including a very glum report from Caterpillar (which included an announced 20,000 job losses).

The Nikkei continued the trend this morning though with the index showing a near 5% advance, aided by news the Japanese government is to offer funds to firms whose cash raising ability has been hit by market dislocations.

After hours we get the Canadian budget presentation at the reconvening of Parliament following a 7-week hiatus. This might not sound too interesting but with political power hanging in the balance, a rejection of the budget will bring down the ruling Government and likely lead to a minority government being formed.

Add this to the continuing decline in interest rates and the already announced huge rise in borrowing and we get the scenario for a sharply weaker Loonie in the weeks ahead.

Yesterday saw the first (and hopefully last) Government casualty of the recent Global Financial Crisis with the collapse of the Icelandic administration. The problem appears to be that there are no obvious candidates to take up the ‘hot potato’. Not a good omen for the country or currency.

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The UK Government’s bail-out plan for Banks – Part II, despite initially being greeted with optimism, soon adopted the role of the mill-stone, dragging equities and Sterling lower plus pushing Gilt yields up. This despite the feeling that the MPC will cut rates at their February meeting and/or the March one as well.

Expect yields on Gilts to drop through the 3% barrier soon and Sterling to slip further as the market realises that the UK economy is still slipping fast and the minutes to be released tomorrow from the MPC promise further rate cuts to come.

Other than Obama at 5.00pm GMT today the major influence should be the release of the German ZEW survey of economic sentiment and current conditions, neither figure expected to be particularly inspiring.

This might be a reason to take profits on recent Euro/Sterling gains.

We also have Mervyn King making a speech at a CBI event during which it will be anticipated that he make reference to recent events in the economy.

Again, there are no major data releases from the US

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If this is correct then expect to see an announcement as part of the G20 Heads of State communique at the close of this weekend’s summit in Washington and lower interest rates all round come next week.

Not sure if the gradual acceptance of this possible development was the sole reason for the massive turn round in Wall Street’s fortunes last night but the bounce in US share prices was massive (DJIA up 6.67% and NASDAQ up 6.5%) and a positive impact on other stock markets has been/is being seen.

As I mentioned before, the problem is that monetary policy tinkering (albeit with a capital T) will not work on its own.

In order for the stagnant global economies to benefit from lower rates, we need to see adjustments to fiscal policy plus a return of confidence to the Financial Markets and here is where the problem lies.

The big player at the table is the US of course, who are presently in a complete fiscal mess. While Congress are keen to pass through a large fiscal stimulus package, there is considerable doubt as to whether George Bush will sign it.

The second biggest player is the Eurozone who have no mechanism for the harmonisation fiscal policy and it is obvious to all that there is considerable discord amongst members as to the desirability of any immediate stimulus.

Japan, the third largest in the group, has no scope for any sizeable fiscal adjustment as its debt ratio is far too large for it to be able to push anything meaningful through. In other words it looks very unlikely that any sort of agreement on fiscal stimulus will be reached this weekend and as such, the kick-start will sputter along for a while yet.

It is interesting that the focus of Paulson’s bail-out plan for the US banking system has shifted dramatically with concern centred suddenly on consumer demand rather than the Banks’ huge portfolios of toxic assets and the fund being used to invest in Financial Institutions rather than just buying toxic assets from them.

This, I suppose, is about as close as we are going to get to a cash injection into the US economy as we are going to get ahead of the change in the US administration in January.

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.

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.

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.

UK stocks suffered their worst falls since Black Monday in 1987 with the FTSE 100 falling by 7.8%, In the US the Dow Jones fell below 10,000 for the first time since Oct 2004 and the S&P; 500 fell by 2.3% to 1,073.81, its lowest level since Aug 2004.

There is now increased speculation that Central Banks around the world will reduce interest rates in order to cushion their economies from the credit freeze. The market now deems there to be a greater probability that the BoE will cut rates this Thursday by up to 50bps.

Overnight Australia’s Central Bank cut its benchmark rate by 1%, twice the amount that was predicted, to 6%.

The unwinding of carry trades saw the yen strengthen against a range of higher yielding currencies. As volatility increased yesterday funds were converted into yen, the currency in which funds are initially borrowed to transact the trade.

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.

Stock Markets are having a torrid time with both the FTSE and Dow just a smidge away from entering respective official bear markets, indicated by a fall of 20% from the previous peak (FTSE is currently down 18.5%).

The NIKKEI last night closed after its 10th consecutive day of losses, the longest sequence since 1965 having lost about 8% of its value during this period. This morning sees UK stocks already under pressure with both Construction and Retail sectors under pressure – M&S; pontificating that retail conditions will remain grim for the next 2-years.

Dissonance reigns in Europe over the ECB decision on interest rates scheduled for Thursday lunchtime. The Central Bank have manoeuvred themselves into a corner over the decision on raising rates having already primed the Markets for such a move.

Politicians however can see the writing on the wall and have been voluble in their questioning the wisdom of such a move. With economic data from Eurozone very much on a down, the hiking of rates is unlikely to go down well across the region.

In the UK, data was also negative with the PMI lower than expected (45.8 ag exp 49.8) to a 7-year low, house prices fell for the 8th straight month declining at their sharpest rate since December 1992 – according to the Nationwide Building Society and Sterling accordingly dipped down to 1.26 against the Euro.

The only currency that fared worse than the pound was the US Dollar which suffered at the hands of a continued rise in crude oil prices (Israeli sabre-rattling towards Iran in response to the latter’s nuclear programme) and the decline in the Global economy.

Cable briefly hit 2.00, but very briefly. By the time you had said “€˜I will have some Dollars there please’ it was heading lower.

The quandary for market participants is for everything that you sell, you need something to buy.

On that basis the high yield commodity based currencies might have some latent strength in them and I particularly like the prospects for the Norwegian Krone with oil reserves, independence and relatively high interest rates. We will see.

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.