BetterTrades

May 4, 2009

On the world stage, overseas markets surged in Monday’s trading, led by news out of China that their economy should rebound heading into the 2nd quarter, along with upbeat news from last week’s economic reports here in the U.S. as the domestic markets posted outstanding gains throughout April, investors worldwide have increased optimism that the global economy can recover by the end of the year.

An analyst from BGC Partners was quoted as saying that, "A year ago that would have been enough to see global stock markets drop by 10%. Today investors are much more sanguine about absorbing bad news. It is unlikely that anything could be as devastating as the credit and banking crisis of the last two years.”

In China, economic leaders there announced that a survey within the country’s manufacturing industry indicated that sentiment there has increased for the second consecutive month. In a report from China Federation of Logistics and Purchasing saw the index increase from March’s reading of 52.4 to 53.5. This follows the U.S. report last week in which manufacturing activity posted its best showing since last September.

The Chinese government also commented that an increase in investment spending along with stimulus spending could aid the economy towards a 7% expansion by the next quarter. The proposed increase would be on top of the 6.1% gain the economy saw in the 1st quarter.

Further into China’s economic guidance, factories and manufacturers are forecasted to advance by nearly 28% in the upcoming quarter, while economists are looking for those industries to increase by nearly 29%.

In Hong Kong, a similar survey to China’s manufacturing index showed that the CLSA Asia-Pacific Markets brokerage house witnessed their survey advance to a reading of 50.1 in April, up from March’s reading of 44.8.

"China's government has been extremely successful in stimulating investment and, combined with a sharp improvement in export orders, this has pushed the PMI back into positive territory in April," announced Eric Fishwick, CLSA's head of economic research.

By the close of overseas markets on Monday, China's Shanghai Composite Index climbed 3.3% to 2,559.91, while South Korea's Kospi index advanced 2.1% to 1,397.92, its highest close this year. The Hang Seng Index surged 860.06 points, or 5.5%, to 16,381.05, its highest close since October 14, while the Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies, jumped 6.1% to 9,641.91, its highest close since September 25.

Across the pond, Europe remains mired in a “deep and widespread recession,” according to European Union officials, citing a surge in unemployment that will affect the region over the next two years. EU representatives announced on Monday that the region’s economy will most likely contract by 4% this year, more than double what economists had first projected.

Economists had earlier predicted contraction of 1.8% throughout the European Union, and a 1.9% decline in the Euro-zone areas.

The European Commission, which oversees both the 27-nation EU and the 16 countries that use the Euro as currency, said that there could be upward of 9 million jobs lost in 2009 and 2010 collectively in the EU, while the rate in the Euro-zone could hit an all-time record of 11.5% by next year.

On a per-country basis, Britain and Italy are expected to show a decline in their economies by a 4% to 4.5% mark, while France is projected to contract by a smaller 3% clip. In France and Britain, they are expected to see unemployment total surpass 3 million next year, while France’s jobless rate could reach as high as 11%. That figure is small in comparison to Spain’s rate, which is forecasted to see their unemployment rate go as high as 20%.

Germany, which is the region’s largest economy, is projected to contract at a 5.5% rate this year, as demand for high-value exports continues to show weakness. Such goods as heavy machinery and automobiles have been greatly affected by the global recession, as well as an unfavorable exchange rate between the U.S. Dollar and the Euro, as well as with other major currencies.

In efforts to offset the current European recession, the EU governing body received no criticism for their $179B, or 135 billion Euros, spending spree this year to help support economic growth. The EU is already scheduled to spend $119B, or 90 billion Euros, for next year. The EU is predicting a running budget for next year of 900 billion Euros, more than 7% of the region’s GDP totals.

On the heels of the Asian markets’ surge, European markets advanced as well by the conclusion of Monday’s trading. By the close, Euro Stoxx 50 Index added 0.72%, while German DAX index gained 1.65% and French CAC Index traded 1.07% above its opening level. London’s FTSE stock market was closed for the holidays.

Inside Forex trading, the Dollar retreated in value against the Euro and the pound as the U.S. economy has begun to show signs of stabilization, which invites investor risk throughout the global markets. By late Monday, the greenback was down 0.5% versus the Euro, buying $1.3332, while the Dollar was down 0.3% against the British pound, buying $1.4955. Trading against the Japanese yen, the Dollar climbed 0.3% to 99.41.

2009 Better Trades Article

brought to you by

BRIAN MULLIN