The purpose of this blog

Hi,

The main propose of this blog is to keep people informed about what is going on in this strange world we live in and which insists on breaking apart as the time goes... I will give special emphasis to the financial condition of the world as well as its revolutions.

Best regards

Eurozone consume is rising...

Eurozone consumer spending has shown fresh signs of weakness with retail sales falling unexpectedly sharply for a second month running – even as German manufacturing orders powered ahead.

Retail sales in the 15-country region fell by 0.5 per cent in November, after a 0.7 per cent fall in October, according to figures from Eurostat, the European Union’s statistical office. The fall was almost certainty a reaction to soaring energy and food costs.

Bad news coming from the UK

Sterling dropped to a record low against the euro and its weakest level in six months against the dollar on Wednesday as bad news from the UK retail sector heightened fears over the health of the country’s economy ahead of the Bank of England’s decision on interest rates.

Marks & Spencer, the UK’s largest clothing retailer, revealed a 2.2 per-cent fall in like-for-like sales in the last quarter.

Market corrections are coming soon...

Recent US interest rate cuts have helped create a liquidity boom in emerging markets (EM), fuelling demand for raw materials and boosting stock markets. In turn, robust demand and a global oil supply contraction in the third quarter of 2007 recently pushed crude oil briefly above $100 a barrel. Meanwhile, the US dollar is close to record lows, both against the euro and on a broad basis. More interestingly, the long-term correlation between oil and the dollar has moved from a historical average of -1 per cent to -80 per cent of late.

How are the spike in oil prices and the slide in the dollar related?

UK economy fears all this actual economical problems...

Sterling fell to an 11-year low against European currencies on Wednesday after unexpectedly poor Christmas sales figures from one of Britain’s leading retailers raised fresh fears about the health of the UK economy.

The bank of England is stating that...

The Bank of England left interest rates unchanged at 5.5 per cent on Thursday, as fresh evidence emerged that mortgage borrowers are not yet getting the full benefit of December’s quarter-point cut.

The Bank’s survey of quoted mortgage rates at the end of December showed rates on most fixed-rate mort­gage products had changed little over the month, despite a lower official rate and a decline in two-year swap rates, which determine lenders’ funding costs.

Peter palmedo has something to say...

Peter Palmedo, a portfolio manager based in Sun Valley, Idaho, has something even better than a flagship fund that profited mightily from the rise in gold: the right to say “I told you so.”

“One of my prize possessions,” he taunts an FT writer, “is a framed copy of the issue of the Financial Times from December 1997 with the headline ‘The death of gold’. That was basically the momentum low for gold over the last 20 years.”

Arabian bank's revenge

Saudi Arabia’s largest state bank has urged the government to consider altering the riyal’s peg to the US dollar and to diversify its assets by setting up a sovereign fund to boost returns and reduce exposure to the US currency.

The statement by National Commercial Bank’s chief economist comes amid intense pressure on the government to tackle rising inflation and consider the first riyal revaluation in 21 years.

Ambac's fall

Ambac, the world’s second-biggest bond insurer, on Friday lost its crucial triple-A credit rating, undermining its ability to add new business and dealing a blow to the billions of dollars of securities it has guaranteed.

Rating agency Fitch cut the bond insurer’s credit rating to double-A, citing a $1bn capital shortfall caused by losses on mortgage-related bonds Ambac has guaranteed. Fitch did not rule out further downgrades, citing “significant uncertainty with respect to the company’s franchise, business model and strategic direction”.

George Bush and his fiscal stimulus...

President George W. Bush on Friday outlined a $140bn fiscal stimulus plan involving temporary tax relief for both consumers and companies in a bid to keep the US economy out of recession.

The administration said his plan would create or safeguard half a million jobs at risk from the economic downturn.

Asia trusts on Bush

Asian stocks mounted a recovery on Friday after heavy morning losses as hopes rose of aggressive action to ward off a recession in the US, the region’s biggest export destination, and investors took the view that some markets were oversold.

With the US outlook darkening, President George W. Bush on Friday is to sketch out a fiscal stimulus plan of up to $150bn, expected to include tax rebates and corporate investment incentives. Comments from Ben Bernanke, Federal Reserve chairman, supported expectations of a US rate cut of at least 50 basis points at the Fed’s meeting at the end of the month.

Gold falls just like everything else in the US

Gold enjoyed a sparkling start to trading on Monday, hitting a record $914 a troy ounce, but its performance dulled later in the week as investors started to withdraw from gold exchange-traded funds.

The outflows were substantial with 22.7 tonnes leaving streetTRACKS, the largest gold ETF this week. On Thursday, streetTRACKS saw a record one-day outflow of 21 tonnes, equivalent to a month of gold production in China, now the world’s largest producer.

At a time of increased risk aversion and equity market weakness, this unexpected reversal in sentiment towards gold has proved unsettling.

“Should this scale of redemptions continue, it may put into question the widely held view that ETF investors differ from other gold buyers in that many have a strong ‘buy-and-hold’ mentality,” said James Steel of HSBC.

ETF investors have played a key role in driving gold to record levels, but the flip-side has been a sharp drop in demand from the jewellery market. GFMS, the precious metals consultancy, warned this week that jewellery buying could fall by 20 per cent in the first half of 2008 due to high and volatile prices.

Gold slipped 1.7 per cent to $880.25 a troy ounce this week with traders watching $865 as a key support level.

Fears about the possibility of the US economy sinking into recession cast a shadow across commodity markets this week.

The Baltic Dry index, a measure of freight costs for bulk commodities such as iron ore, coal and grains, dropped 18.7 per cent this week to 6,462 after a series of record one-day declines. The fall reflected a number of temporary disruptions to the availability of coal and iron ore cargoes, but it also sparked concerns this was an early warning that the commodities boom could be about to come to an abrupt end.

Impacts of the US recession...

There was no let-up for European shares this week as fears grew that the continent would not escape the impact of a US recession.

Banking and consumer-driven stocks bore the brunt of the sell-off. The FTSE Eurofirst dropped 4.8 per cent over week, extending its losses to 8.8 per cent since the start of the year. It ended the week at 1,358.51, off 1.2 per cent on the day.

“There is a bear market inside the index,” analysts at Citi wrote in a note. “Those stocks exposed to leverage and greatest earnings risk have been savagely de-rated.”

The market recoiled further from financial stocks in a week punctuated by big subprime-related writedowns from several American banks, and a smaller one from German bank

Yen is rising again

The yen climbed strongly this week as currency speculators retreated from carry trade positions.

The Japanese currency climbed against higher yielding currencies as investors looked for safe havens amid the turbulence in equity markets. The yen carry trade, where the low-yielding currency is sold to purchase riskier, high-yielding assets, proved a popular investment strategy in the first half of 2007 as stable equity market conditions ensured a healthy appetite for risk.

But the deepening financial market gloom since August has seen carry trades scaled back since the beginning of this year.

The real test of carry trade activity is the relationship between the yen and the New Zealand dollar. The yen fell 15 per cent against the Kiwi between January and August last year as the latter’s interest rate hit 8.25 per cent against Japan’s 0.5 per cent. But the Kiwi has since lost nearly all these gains, and was down 4 per cent this week to Y82.05 as the yen continued its rally.

Derek Halpenny at Bank of Tokyo Mitsubishi UFJ said: “The prospects for a sustained sell-off of the yen in the current financial market climate of uncertainty remain very slim.”

Pressure remained on high-yielding currencies this week as the top US investment banks reported the extent of their exposure to subprime losses while bond insurance companies were threatened with ratings downgrades, which deepened investor concerns.

“A new wave of the credit crunch could be upon us and the turmoil continues to have a notable impact on Japan,” Mr Halpenny added.

The yen climbed 1.4 per cent against the dollar this week to Y107.31, gained 2.1 per cent versus the euro to Y157.45 and was up 2.1 per cent against the Australian dollar to Y94.82.

Sterling fell on Friday after soft retail sales data added to the likelihood of a cut in UK interest rates at the next policy meeting in February.

December retail sales fell 0.4 per cent, worse than an expected 0.2 per cent month-on-month rise. This took year-on-year sales growth down to 2.7 per cent, the lowest since September 2006.

The main weakness in the report, a 4.3 per cent drop in sales at “non-specialised” stores reflected the slowdown in discretionary spending by consumers.

“The fact that this number has come in so shy of expectations is testament to how the UK consumer is buckling under the combined effects of rising food and energy bills, increasing credit costs, flat wages and negative wealth effects from housing and equity markets,” said Daragh Maher at Calyon.

The pound fell 0.5 per cent against the dollar on Friday to $1.9595, and was 0.5 per cent weaker against the euro at £0.7474. But sterling was stronger against both currencies over the week. Indications the European Central Bank was set to ease back from its hawkish stance followed data showing tightening credit standards to businesses and homebuyers.

Martin van Vliet at ING said: “The ongoing tightening of bank credit standards provides strong ammunition for the doves on the ECB’s governing council to continue to block calls for higher interest rates.”

Over the week, the euro fell 1 per cent against sterling, and was also 0.7 per cent weaker against the dollar at $1.4672.

Although the dollar gained support on Friday after the White House announced measures it hoped would boost the ailing US economy, the US currency was down over the week as recession fears kept minds focused on the likelihood of aggressive interest rate cuts.

The dollar fell 0.2 per cent over the week to $1.9595 against sterling.

US economy recession ahead?

Wall Street stocks slumped again on Friday as worries that the US economy is heading for a recession served up the worst week for equities in more than five years.

President Bush outlined a $140bn package of tax cuts and other measures designed to provide a boost to the US economy on Friday but the plan failed to imbue the market with any confidence.

A downgrade of Ambac Financial, the bond insurer, threatened further credit market turmoil, while Sprint Nextel, the mobile phone company, added to worries about growth prospects in telecoms after subscriber numbers wilted.

The sell-off in telecoms added another member to a growing list of industry groups now in a bear market – a fall of more than 20 per cent from a market peak – joining transports, retailers, semiconductors, homebuilders and financials.

The S&P 500 fell 0.6 per cent to 1,325.19 on Friday and lost 5.4 per cent for the week, its worst weekly performance since markets were buffeted by the collapse of WorldCom in 2002. The sell-off left the index reeling at at its lowest level in almost 16 months.

The Dow Jones Industrial Average declined 4 per cent for this week to 12,099.30. The Nasdaq Composite surrendered 4.1 per cent to 2,340.02 and now stands on the verge of a bear market, a threshold already crossed this week by the Russell 2000 small-cap index, which fell 4.7 per cent to 673.16.

Tobias Levkovitch, chief US equity strategist at Citi Investment Research, said the stock market might now be suggesting a greater than 50 per cent chance of recession with “favourite sons” such as energy, commodity and industrial stocks witnessing sharp pullbacks.