BetterTrades

November 11, 2009

On a day in which nearly every major stock exchange was trading in positive ground, the November 11 session saw global markets pop in conjunction with several economic happenings. In China, officials announced that the country’s output and retail sales were up during October, signs that the world’s third largest economic was well on its way to recovery.

In October, China’s exports declined 13.8% to $110.8B, its smallest contraction in the past 10 months. Imports fell 6.4% to $86.8B compared to the same period a year ago. Moreover, factory output surged to a 19-month high of 16.2% in October. With these figures, economists believe that China is on track to meet or surpass the government’s projected goal of an 8% economic growth for the year.

Economic growth receded to a low of 6.1% in the 1Q, but managed to rebound to 7.9% during the 2Q. China’s economy hit 8.9% in growth during the 3Q compared with a year earlier.

China’s key inflation indicator, also known as the consumer price index, was down 0.5% in October compared to a year ago. Capital infusion within the economy has also advanced throughout the first 10 months of the year, as fixed asset investments surged more than 33% compared to the year-ago period.

Feng Yuming, an analyst for Oriental Securities in Shanghai remarked, "October's figures came as no surprise. The momentum for an economic recovery carries on despite the fall of imports. The new good change in October is that the trend in the contribution of consumption to economic growth is increasing and we believe that in the fourth quarter it will increase."

After a recent visit to Shanghai and Beijing by President Barack Obama, the People’s Bank of China is discussing the possibility of allowing the Yuan to appreciate after an 18-month pause. Following a landmark revaluation of the Yuan in July 2005, China’s currency had strengthened by almost 20%, until the impact of the worldwide financial crisis last year. This prompted the country to peg the Yuan against the Dollar in order to protect their exporters.

Since the middle of last year, the Yuan has been pegged at 6.83 per Dollar. Because of the stagnant pricing, other countries have begun to express indignation with China, as the Yuan has followed the Dollar’s downfall against many of the world’s currencies. From mid-February, the U.S. Dollar has fallen more than 13% against a basket of currencies, including the Euro and the Japanese yen.

Xing Ziqiang, an economist at China International Capital Corp in Beijing, commented on the Yuan discussion, "I think the wording change ... shows that it is an irresistible trend for China to resume Yuan appreciation. It is not sustainable for the Yuan to always be pegged to the U.S. dollar; after all, the re-pegging since late 2008 was just part of China's measures to address the global financial crisis, and now the impact of the financial crisis is fading, so the Yuan should resume appreciation sooner or later."

In other world news, World Bank President Robert Zoellick made a comment regarding the elevated concern over the U.S.’s inflated unemployment rate, which was propelled to a 26-year high of 10.2% in October. Zoellick believes that the rate will remain above 10% for 2010, resulting in additional hurdles for the American economic recovery.

"You're going to have problems with delinquencies of credit card loans, consumer loans, people won't be able to pay their mortgages. Some banks are going to continue to be troubled by bad loans. If you've got large scale unemployment, if you've got consumers rebuilding savings and deleveraging, I don't think the consumer is going to play that role," Zoellick stated..

OPEC, the Organization of the Petroleum Exporting Countries, announced on November 11 that a push in the price of oil above its current level, which is now hovering around $80 per barrel, could weaken demand for crude products next year. OPEC, which supplies nearly 35% of the entire world’s oil, revised their estimates for global demand growth in 2010 to 750,000 barrel per day, up from a previously stated level of 700,000 barrels per day.

The report confirmed that, "Although most of signs are pointing toward higher oil demand, a potentially weak economic recovery along with higher oil prices are the two main factors that may dampen world oil demand in the coming year. Should prices increase and be sustained above the current level, oil demand growth will be pushed down by more than 1% in the OECD countries." OECD refers to the Organization of Economic Cooperation and Development.

Inside the Forex markets, the U.S. greenback slipped to a new 15-month low during the November 11 session, two days after the index marked its new low. The dip in value of the Dollar was a result of the Federal Reserve commenting that America’s economic recovery would be “erratic, thus bolstering the view that interest rates would stay low and undermine the Dollar with no new U.S. data to drive trading.”

By late afternoon, the U.S. Dollar index slipped 0.2% to trade at 74.876. In currency trading, the 16-nation Euro was lower against the greenback, buying $1.4980, down from the previous session’s price of $1.4984. The British pound retreated versus the Dollar as well, buying $1.6566, down from yesterday’s value of $1.6631. The Dollar also managed to advance against the Japanese yen, buying 89.81, up from 89.79.

Across the pond, Germany's DAX ended the session up 55.15 points, or 1%, 5,668.35, while France's CAC-40 was higher by 28.80 points, or 0.8%, at 3,814.39.

Britain's FTSE 100 index, an indicator of leading British shares added 36.20 points, or 0.7%, to close at 5,266.75, just shy of its yearly high.

In Asia, Japan's Nikkei 225 was up throughout much of the morning session before closing virtually unchanged at 9,871.68, while Hong Kong's Hang Seng advanced 1.6% to 22,627.21.

China's Shanghai index fell after eight straight days of positive moves, falling 0.1% to 3,175.19 despite encouraging news from the country’s retail and manufacturing sectors. South Korea's market added 0.8%, with equity markets in Australia, Taiwan and Singapore all posting positive days of trading.

2009 Better Trades Article

brought to you by

BRIAN MULLIN