Articles from June 2009



FTSE 100 goes into deep freeze

Markets have been quiet in the past but this morning is almost something different.

In two hours of trading the FTSE has managed to excite absolutely nobody at all after the Dow and S&P; went into deep freeze yesterday evening.

With volumes draining away as dealers head off to the beach, there is a good chance that the current moribund conditions will continue for quite some time.

Watching the charts is rather a frustrating pastime, as even small moves look huge due to lack of any major scale with which to compare. The FTSE 100 has now been stuck in a 100 point range for seven sessions and today does not look like changing matters.

One ray of hope is that the Pound has gone for broke this morning and busted straight out of the recent trading ranges.

The 07.00 to 09.00 (UK time) trading period is becoming quite interesting, as Europeans turn on their screens and hammer the market one way or the other.

The high this morning at $1.6742 has been opposed quite strongly since it was hit at 07.21 this morning and we have slipped back to $1.6650ish with punters getting heavily short all the way up.

Those who have dealt with sufficient margin to avoid being stopped out on the way up may be hoping for a nice price correction back into the $1.6200 to $1.6550 trading range, but if we do not get back down there today the chances of a new range being set up are quite strong.

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’s debt will quadruple unless drastic steps are taken, says S&P

Britain’s national debt will quadruple to peaks only ever seen in the wake of the Second World War unless the labour Government takes drastic steps to address the pensions and ageing crisis, Standard & Poor’s has warned.

The ratings agency has calculated privately that the UK’s public sector debt could quadruple from its current level of just over 50pc of economic output to 200pc or above within the next four decades as the cost of servicing public sector pensions, ballooning social security costs and healthcare burdens becomes overwhelming, The Sunday Telegraph has learned.

The warning is doubly sobering since S&P; last month placed Britain’s debt on to “negative outlook” – an explicit signal that it could soon be downgraded.

Although the agency calculated two years ago that the effects of an ageing population, alongside high pensions and healthcare costs could push Britain’s net debt up above 150pc by 2050, it now fears the added cost of the financial crisis means the debt mountain could in fact rival that in 1945, when the cost of fighting a world war pushed debt well beyond 200pc of GDP.

The warning coincides with research showing that the true size of the UK’s unfunded public sector pensions deficit, which needs to be funded through taxpayer’s cash, is now £1,177bn – a staggering £20,000 for every person in the UK.

A study for the highly respected British North American Committee, written by former Bank of England economist Neil Record, finds that the UK shortfall is far more severe than in the US or Canada.

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.

Britain facing biggest deficit in Western world, warns OECD

Hopes that the biggest post war economic slump will soon end have been dashed after the rich world’s leading economic institution slashed its forecasts for economic growth and warned that Britain next year faces the worst deficit in the industrialised world.

In a further blow for Alistair Darling, the Organisation for Economic Co-operation and Development also warned that the Government may have to pump more than £130bn extra into the banking system.

Most economic statistics released in recent months have been better than expected, including the CBI’s distributive trades survey yesterday, which was the strongest for a year.

However, the OECD downgraded its forecast for UK growth this year to a contraction of 4.3pc – compared with a previous forecast of -3.7pc.

The cut is significant, since the OECD chose on the other hand to increase its growth forecast for the world’s leading industrialised economies from -4.3pc to -4.1pc. It added that the 30 member OECD would grow by 0.7pc next year, while Britain would stagnate, not growing at all.

The OECD said that not only was Britain’s fiscal position far weaker than its neighbours, following many years of high borrowing by Gordon Brown, the UK was also more vulnerable to a consumer slowdown associated with falling house prices.

The Paris-based institution said the Government’s fiscal deficit next year would climb to 14pc of gross domestic product – higher than anywhere else in the OECD, including Ireland and Iceland. The report urged the Bank of England to keep “the [interest] rate as close to zero as possible up to end 2010.”

It also warned that more taxpayers’ money may have to be poured into the financial system, saying: “further bank losses may well require substantial further capital injections by governments.” It said the UK may have to spend a further 3-9pc of GDP – equivalent to £45bn-£135bn.

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.

Mortgages- fixed rates could reach 6pc within weeks

The average cost of a two year fixed rate mortgage has broken through the 5pc barrier for the first time since January and could soon reach 6pc.

Lenders are now charging an average of 5.04pc to home owners who want to fix their repayments for two years, up from 4.92pc on Monday and 4.74pc at the beginning of last week.

The steep rise in the average rate seen in recent days has been driven by Nationwide’s decision to increase the cost of some of its fixed rate deals for the second time in two weeks.

Nationwide was followed by the Woolwich, which raised the cost of one of its two-year fixed-rate deals by 0.7pc, and other lenders are now expected to increase their rates again in the days ahead.

Nationwide sparked the latest round of price increases when it repriced its entire fixed rate mortgage range on June 12.

Other lenders were quick to follow suit, with major groups such as Halifax, Cheltenham & Gloucester, Abbey and Alliance & Leicester all increasing the cost of the deals they offered.

The latest round of price rises is bad news for home owners, with almost 90pc of mortgage borrowers opting for a fixed-rate loan, according to Legal & General, in a bid to lock in to low borrowing costs before the base rate starts to rise again.

But there are still good deals available, with Mansfield Building Society offering a two-year fix of 3.39pc for people with a 25pc deposit who pay a £999 fee, while Britannia Building Society has a two-year rate of 5.99pc for those with only a 10pc deposit who pay a £599 fee.

For those looking to fix for five years, the Post Office has a rate of 4.45pc at a 60pc loan to value ratio with a £599 fee, and Britannia Building Society is offering 6.19pc at a 90pc LTV with a £999 fee.

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 lends record €442 billion to banks

The European Central Bank said today that it lent a record €442.24 billion at 1 per cent in one year funds to commercial banks.

The previous record for the central bank’s refinancing operations was €348.6 billion in two-week funds on December 18, 2007 as crisis-hit commercial banks scrambled to bolster their balance sheets during the crunch year-end period.

Interest rates overall would be expected to remain low, a key issue as the eurozone grapples with what is likely to be slow recovery from the worst global recession in more than 60 years.

The ECB has resisted the so-called “quantitative easing” practised by the US Federal Reserve and Bank of England — essentially printing money to buy government and private debt to boost recession-hit economies.

The ECB, however, has generated a flood of cash through loans that will now extend to 371 days, or 12 months, from one week to six months in the past.

Analysts had expected banks to leap at the chance to get an unlimited one-year loan at the ECB’s lowest rate ever.

The central bank has said that in subsequent one-year operations — the next is scheduled for September 29 — the rate could be higher depending on market conditions.

By providing huge amounts of cash to commercial banks, the ECB aims to lower the cost of borrowing by companies and individuals, and spur economic activity.

Money markets influenced by central bank operations determine the flow of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans.

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.

Markets tumble on World Bank’s global economy fears

Global stock markets tumbled yesterday on renewed concerns about the health of the world economy.

Global stock markets tumbled on Monday on renewed concerns about the health of the world economy.

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.

World Bank sees deeper and longer slump

World Bank urges continued government stimulus as private sector investment famine cripples recovery in developing countries.

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.

Public borrowing hits record high of £20bn

Public borrowing hit a record £19.9 billion in May as the recession continues to take its toll, official figures revealed yesterday morning.

May’s borrowing was nearly double the £10.6 billion borrowed in April. Public sector net borrowing for this financial year is now £30.5 billion — more than twice the level seen at the same stage 12 months earlier.

Even though May is traditionally a weaker month for public finances, borrowing over the month is the biggest figure since the Office for National Statistics’ (ONS) records began in 1993.

Public sector net debt reached £774.8 billion last month, equivalent to 54.7 per cent of gross domestic product (GDP), far exceeding Labour’s now defunct fiscal rules which said that debt would never exceed 40 per cent of GDP.

The number of people claiming unemployment benefits has risen by more than 80 per cent over the last year as companies cut jobs in the face of the sharp economic slowdown.

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.

Mortgage lending fall undermines recovery hopes

The value of UK home loans granted by banks and building societies fell by 58 per cent in the year to May as homeowners shunned re-mortgaging deals.

Gross mortgage lending totalled an estimated £10.3 billion in May, down 2 per cent compared to £10.5 billion in April and down 58 per cent from May 2008, according to figures published today by the Council of Mortgage Lenders (CML).

There have been signs recently that more home-buyers are returning to the market, with estate agents reporting higher transactions volumes and record rises in buyer interest.

But the CML said that the rise in buyer activity could be being offset by a decline in the number of homeowners taking out new mortgage deals when their fixed-term deal comes to an end. A more detailed breakdown of the figures will be published in two weeks time.

Many banks and building societies have a standard variable rate or SVR that mortgages revert to once the fixed-rate term has come to an end. Many SVRs, which are pegged to the Bank of England base rate, have tumbled since autumn last year as the Bank cut rates sharply.

They are now mostly more competitive than new fixed-deals on the market, prompting many homeowners to take advantage of the lower rate. Many lenders have raised the rates on their fixed-rate deals in recent weeks.

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.

Bank pours cold water on economic recovery

The Bank Of England is sceptical about the so called recovery in the economy it emerged today as minutes of its June meeting showed it was united on a decision to keep rates on hold.

Minutes from the Bank’s meeting two weeks ago revealed the nine member monetary policy committee unaminously voted to keep rates at their historic low of 0.5 per cent.

The Bank conceded that there had been “positive developments” in the economy over the month and that “the risk of a continued sharp contraction in output in the near term had receded.”

However, it indicated that a spate of more upbeat recent economic data about the services, industrial and housing sectors gave less reason for optimism than business groups and commentators have suggested.

“Even if developments over the month had been positive, the increase in confidence apparent in some financial market indicators and some household and corporate sector surveys remained fragile,” the minutes said.

“There was no reason to conclude that the medium-term outlook for the economy and thus inflation has changed materially since the Inflation Report had been finalised.”

Last week, the Pound surged to its highest overall levels this year as hopes that the British economy is emerging from recession continued to burgeon.

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.