WISE MONEY

Global markets are in the doldrums and with decreased trading volumes and a lack of positive data there has been little to prevent a downward path this week. The Dow is down 2.23% on the week and just over 6% on the month, slipping below the critical 10,000 level (closing yesterday at 9,985). S&P and Nasdaq have followed suit heading into the end of the month 6.7% and 6% down on the month.

In the UK the FTSE clawed back from the 6 week low of 5070 seen on Wednesday but is still 3.50% down on the month.  In Asia, the Nikkei and Hang Seng haven’t bucked the global trend also down 5.5% and 2% on the month.

Yesterday the Labor Department in the States reported a reduction in new U.S claims for unemployment benefits. Initial claims for state unemployment benefits fell 31,000 to a seasonally adjusted 473,000, below market expectations for a drop to 490,000.

However this figure did little to support the dollar as firstly the claimant’s number still remains high and there is still a real concern about the recovery of the States after the horrendous week it has had.

Many economists also look at the four week average price of initial claims which is viewed as a better gauge of employment trends; this figure was up slightly by 3,250 from 486,750.

Despite the onslaught of poor data Germany continues to shine as German consumer morale increased for the third month running, hitting its highest level since last October.

Sales of previously owned US homes dropped more than expected in July to their lowest pace in 15 years implying further loss of momentum in the States economic recovery.  The record drop of 27.2% from June equates to an annual rate of 3.83 million units which is the lowest level since May 1995 and June’s sales pace was revised down to a 5.26million-unit pace.

Markets had been anticipating a tumble of around 12% and so were shocked with the magnitude of this figure.

The US Dollar dropped significantly against the JPY following the news to a new 15-year low of around 83.60.

This prompted more verbal intervention from Tokyo but made little impact however as investors continue to sell USDJPY and are now focusing on the all time lows of 79.75 from 1995.

Investors ploughed money into government bonds, driving down the implied cost of borrowing to record lows in Britain and Germany.  The UK 10 year gilt yield fell to 2.88% which is even lower than that of March 2009  when the BoE announced that it would buy billions of gilts under its quantitative easing scheme.

US 10 treasury yields broke below 2.5%.  Oil followed suit and fell below $72 a barrel yesterday, down for a fifth day after weak US economic data spread gloom about the ability of the US, oils top consumer, to work through record stocks.

These ripples of doubt ran across the globe and caused equities to close down; Britain’s top share index closed lower with UK banks, miners and energy stocks bearing the brunt of the sell-off.  The FTSE ended down 78.89 points (1.5%) at 5,155.95 which is its lowest close since 20th July and unwound the gains of 0.8% which we had seen on Monday.

It makes a very refreshing change to see the Pound leading the charge in the currency markets, outperforming all of the major currencies. Against the US Dollar the Pound hit and tested a Fibonacci retracement level at 1.5968- it did not break it but this will be the target again for today and beyond this the 1.60 level.

A recent improvement in economic indicators has been a key driver and this has followed more recently with strong results in corporate earnings and banking results. In addition the global market sentiment has improved and the return to risk in the markets is always a boost for sterling.

HSBC, Lloyds and even Northern Rock have demonstrated a boost in profits and this is leading to sentiment that the recovery is gathering momentum with gains also posted in the FTSE.

Sterling’s good run will also be supported by UK Halifax house prices rising 0.6% for July, however services PMI came in weaker than expected at 53.1 against a forecast of 54.5. GBP/USD slumped a touch on the news but is now starting to recoup those losses.

Overnight the Australian reserve Bank kept interest rates unchanged at 4.50%, the pace of growth is continuing in Australia in line with expectations allowing the reserve bank to slow the pace of rate rises following a succession of hikes.

On Friday, the Dow Jones fell by as much as 120 points after annualised growth in gross domestic product (GDP) was found to have slowed from 3.7% in the first quarter to 2.4% in the second.That came on the back of growth of 5% in the final three months of 2009. The US was initially thought to have grown by 2.7% in the first quarter but that was revised upwards on a day of surprises for economists.

The US Commerce Department also revised downwards GDP figures all the way back to the beginning of 2007.

The second-quarter slowdown led economists to question whether the US might be poised to enter a period of negative growth later in the year, leading to a much-feared double-dip recession.

The Dow Jones fell sharply after the release of the GDP data before recovering ground to settle down 40.72 at 10,426.44 in lunchtime trading. Economists had predicted second-quarter growth of 2.5pc, but their disappointment was compounded by the revised data for the first three months of 2010.

The biggest concern in the City was the size of the downward revisions to previous years’ growth. In 2009 the economy was previously estimated to have declined by 2.4%, but the figure was revised to a drop of 2.6%.

The disappointing growth numbers were compounded by the International Monetary Fund’s (IMF) annual report on the US economy. The IMF said there may be a need for the Obama administration to increase the amount of fiscal stimulus in order to boost the recovery, warning the “outlook remains uncertain”.

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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 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 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 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.