Articles from January 2009



Federal Reserve posts no surprises

With a target Fed Funds Rate (the rate at which The US major Banks are able to borrow overnight Dollars) already at a 0 – 0.25% level, further cuts are nigh on impossible.

The headlines in all the major UK papers this morning focus on the IMF report that they see the UK economy suffering the most severe economic contraction during the current recession amongst all the major global countries.

This really just ties in with previous reports / announcements from the institution and has not caused any additional damage to Sterling. It does however focus attention on a speech being delivered later this afternoon in Nottingham by MPC member, Blanchflower.

Wise Money has no details on the proposed content but the arch-dove of the committee has recently been quoted in the press still calling for an immediate shift in UK rates to zero.

This type of headline in tomorrow’s papers might affect Sterling’s value in the thin Far East trade especially given its recent strengthening.

Other Central Bank action: Reserve Bank of NZ cut their official rates by a further 1.5% down to 3.5% in response to current global pressures on the New Zealand economy and citing the continued abating of inflationary pressures. The market feels that there are more cuts to come with a likely corresponding weakening in the Dollar.

The Swedish Central Bank (Riksbank) Deputy Governor reiterated that they are not at the present time considering any form of quantitative easing but will persist with the policy of continuing to make large cuts in Krone interest rates.

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.

Taxpayers bailout failures

All eyes will be on the FOMC meeting today at 7.15pm this evening GMT.

With the rate already at 0-0.25% the focus will not be on whether they will or won’t cut (no change is expected) but the wording of any statement releases. It is likely that the focus will shift to the quantitative easing measures that the Fed could use to stimulate the economy.

Particular reference is likely to be made to the three key tools Mr Bernanke outlined in his speech in London on 13 January: credit easing, lending for financial institutions and buying of longer term assets.

It is thought that the Federal Deposit Insurance Corp. (FDIC) may manage a so-called “bad bank” that the Obama administration is likely to set up in an effort to help ailing US banks. The aim is to buy up poor assets on banks’ balance sheets. Plans are expected to be announced early next week. This will, no doubt, place pressure on the UK to come out with a similar package.

France’s Consumer Confidence Indicator was released this morning coming out ahead of expectations at -41 (versus -45 expected). This small bounce from the low of -47 seen last July is not significant but a move in the right direction.

On the currency front we have seen GBP continue to rally over the week to current levels of 1.4315. This is a small step up considering the 32% drop we saw from mid last year when GBP was trading at $2 to last week’s low of 1.35.

This short term sterling strength has seen GBPEUR remain above 1.07.

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.

Global stock markets are bullish

With strong performances from Europe, Wall Street and Japan – all for differing reasons.

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.

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.

Chinese New Year Holiday

Plus today’s Australia Day Bank Holiday heralds a very thin Far Eastern market for the next 5 days.

In the UK, Alistair Darling is bemoaning the recent moves by the markets in response to the Bank rescue package established last week, saying that the City has missed crucial details and that the package will work. Toys and pram come to mind.

The out-going MPC arch-dove, Blanchflower was also in print over the weekend doing what he does best, talking UK interest rates lower. He was however, more bullish than most in his medium term assessment for the UK with a fairly upbeat prognosis as opposed to the outlook for the Eurozone.

Talking of the Eurozone, there were mixed messages from ECB members with the usually less than hawkish Mersch stating that he would be uncomfortable with the risks of cutting rates much further from the current 2% as this would risk the ECB losing policy control.

Weber meanwhile, who is normally one of the more hawkish of the ECB policy board, admitted that the downturn in the economy had been more prolonged and steep than had been envisaged. Even though no comment was made on interest rates directly, the fact that Weber’s opinion might have softened, could be very important going into the next meeting.

This week we have the Federal Reserve meeting which one would not expect to produce anything that we have not heard/seen before. Other than that, market participants will await any positive signs from the bits of economic data coming through as well as waiting comments from participants at the upcoming Davos get together.

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 dry old week of data

Today looks no different with just December Retail Sales and the 4th Qtr GDP figures, both from the UK.

Neither figure expected to be very awe inspiring but that in itself might be Sterling neutral / positive. Trouble is, that with the Dollar on a bit of a roll, momentum might take over and cable would be pushed lower.

The Dollar was given a bit of a boost yesterday by comments from US Treasury nominee Tim Geithner. Assuming that he is speaking for the new administration, his affirmation that a strong $ was in the national interest and his accusation that China was manipulating the Yuan exchange rate for its own benefit.

The 2 statements seem to be a bit contrary but the underlying tone is very clear. Further Dollar gains were tempered however after a bit of a hiccough on Wall Street followed weaker than expected data from the US.

Microsoft started the mover lower in share prices by reporting that their earnings had missed expectations and that they were laying off 5,000 workers, or slightly more than 5% of its total workforce, the company’s first widespread cuts in its history.

The Dollar has resumed its march in European trading this morning.

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 the center of attention

With The Minutes from January’s MPC meeting, unemployment numbers and the PSNCR data ensuring that Sterling remained in focus for most of the day.

Indeed it wasn’t until 3.00pm, when the witching hour for option expiry arrived, that we saw the market shift its attention away from the Pound.

Data from the UK was again on the weak side of awful. Unemployment was higher, nigh on touching, or just above, 2 million depending upon which basis you want to believe and predictions for future trends were confirmed as still heading the wrong way.

The PSNCR was predicted to be huge (largely due to the £20 billion required for the purchase of RBS shares being included) but the outcome was still £4 billion + higher than the worst estimates.

The debt balloon continues to inflate yet still the DMO maintain that raising the sort of sums required to finance UK plc via Gilts issuance presents no problem. We will see.

Overseas investors were not overly impressed with all this and Sterling had another torrid day falling to a 25-year low of 1.3620 at London’s close.

From there however, the currency experienced a bit of a bounce, getting to a high of 1.4020 at the close of New York trading. This sudden appreciation appears to be profit taking following comments that suggested Sterling’s current plight would be high up on the agenda at the next G7 Finance Minister’s meeting in February.

It appears that the MPC cut rates by 0.5% not because they felt it was necessary or would do any good but because the Market was expecting it and the value of Sterling was too fragile not to appease the Market. Interesting.

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 is really getting some bad press

And not only the Teenage Scribblers (remember them) but also from experts who have been around a long time and are deemed to know what they are talking about – for most of the time at least.

Today we have Jim Rogers, who was co-founder with George Soros of their Quantum Hedge Fund, advising investors to get rid of everything Sterling related (including currency) and invest elsewhere.

Now whether it was as a direct result or whether it was just coincidence who knows but cable went through yesterday continuously making 7 ½ year lows and its value against the Euro also dipped sharply.

Gilt futures hit a 1-month low and yields rose again as concern over the UK’s ballooning debt continued to grow. Outlook for the UK is cloudy to say the least and it is very apparent that, by their recent actions, the labour Government would love to draw a line under the ongoing disaster that is the UK Banking system.

Sterling is suffering on the delay.

The MPC minutes release will be studied for confirmation that rates are still heading lower and imminently. this won’t do Sterling any favours. Neither will the UK unemployment numbers or borrowing figures. Yesterday’s UK CPI figures, although reporting a less sharp fall than expectations, will not cause any concern with policy makers.

Yesterday the Canadian Central Bank cut their interest rates by 50 basis points to a historic low of 1% (still a differential over US Dollar rates but diminishing). They added that the country was in recession and warned that the economy would shrink by 1.2% this year.

The CAD dipped on the news even though the cut had been expected following last week’s trade data.

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.

Well the Good News is that there is no news.

Because of the Martin Luther King Day holiday yesterday, there was no US data out and Wall street was not open. Other than that we are struggling for positives.

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

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.

Wise Money starts with the positive news

Tomorrow sees the inauguration of Barack Obama as US president which the entire planet hopes will be the first step towards global recovery.

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.

ECB cut 0.5% as expected

In the market, the ECB did cut rates but only by the very minimum required.

The President, M. Trichet then compounded the disappointment by implying that March would be the next €˜important meeting and as such, no further rate adjustments would take place before then. The Euro slipped against all other currencies during the trading day.

Concerns were more directed towards developments in both the US Banking system, following the results from JP Morgan, and the UK where estimates of additional capital required by the major domestic Banks, combined to send Bank shares spiralling down and cause rumour after rumour of possible events over the weekend.

Today we really wait for inflation data from the US followed by industrial production and then the Michegan sentiment survey. Following a proliferation of comment from Fed Members last evening, the Dollar has started on the back-foot but ahead of the long weekend in the States expect little further action until 1.30pm.

No data expected from the UK but we expect an announcement from the FSA some time today lifting the ban on the short selling in financial stocks. That won’t help the current slide in shares.

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.