BetterTrades

June 17, 2009

European markets marginally advanced to end the second week in June, as investors inspected recently released economic data for further signs that the recession plaguing the world's largest economy is stabilizing.

In a report released late in the week, it was revealed that industrial production throughout the Eurozone plunged 1.9% in April from this time last year. The data revealed to be another indication that the 16 nations using the Euro could emerge from the recession after the U.S. and Britain.

Eurostat, the European Union's statistics office, confirmed that industrial output contracted at a record 21.6% rate annually, down from March's 19.3%. Responsible for the decline in industrial output was the considerable 2.5% decline in the Eurozone's 1Q GDP reading.

In Germany, the largest single economy within the Eurozone, the recession was even greater as demand for its high-value exports, such as cars and heavy machinery, retreated in the midst of the crumpling of global trade. By the end of the week, Germany's DAX managed to end the week higher, adding 8.52 points, or 0.2%, to 5,059.24.

By the end of the week, the FTSE 100, the leading index of British shares, was up 28.42 points, or 0.6%, at 4,441.95. Heading into the close, Barclays PLC was down around 3% after it confirmed the sale of its global investment unit to U.S. fund manager BlackRock Inc. (BLK) for $13.5B.

Asian stock markets were higher for the week, as Japan's Nikkei average closed up 279.86 points, or 2.8%, to 10,135.82. The index wavered in a narrow range after a surge took it above the psychologically important 10,000 mark for the first time since October 2008.

However, reports out of Japan showed that the nation’s economy shrank at a 14.2% annual pace in the 1Q, a little better than what was first thought. Nevertheless, it was still the worst quarterly contraction ever for the world's second-largest economy. A preliminary report last month had said GDP declined at a 15.2% pace.

With the economy lagging, exports have plunged, as companies have slashed production. The economy has contracted for four straight quarters, including a revised 13.5% in the 4Q of 2008.

Business investments into factories and equipment declined 8.9% from the previous quarter, while consumer spending retreated 1.1%. Japan's 1Q results are were also worse than many other industrialized nations, including an annualized 5.7% contraction in the U.S.

Japan has been pummeled by the unprecedented collapse in global demand triggered by the U.S. financial crisis. Its exports plummeted a record 26% in the 1Q from the 4Q.

Major exporters such as Toyota Motor Corp. (TM) and Sony Corp. (SNE) have reacted by cutting workers’ shifts, suspending factory production and reducing the overall workforce. In lieu of the recession, the jobless rate jumped to 5% in April, the highest in six years.

However, Toyota Motor Corp. said in May that the company is increasing production of the world's top-selling hybrid, the Prius, to meet better-than-expected demand for the latest version.

Hong Kong's Hang Seng index added 367.89 points, or 1.9%, to 18,889.68. Australia's key index ASX ALL ORDS gained 0.4% to 4,061.50, while South Korea's Kospi climbed 0.7% to 1,428.59.

After the Shanghai Composite Index hit a 10-month high during the past week, dismal export numbers from China caused investors to cash in on recent gains

However, important data from China showed that investments surged in May as the government poured money into its economic stimulus programs, which helped offset an unexpected drop in the country’s trade balance.

China’s stimulus program is based on heavy spending on construction of airports, highways and other public works. Although the majority of the money has gone to state-owned construction companies, funds have been allocated to the private sector as builders begin to hire more workers.

Government spending on factories and other fixed assets in China surged 32.9% in the first five months of the year, which translates into production growth in May of 38%.

Despite an increase in spending, May exports plunged by a record 26.4% year-over-year, while imports contracted by 25.2%. Regardless of the fall in imports, China's demand for oil, iron ore and other foreign raw materials has increased through the country’s $586B stimulus program. Chinese economists believe that exports will not recover until the U.S. and European markets rebound.

Meanwhile, home sales in China rocketed 45.3% during the first five months of the year to more than $161B. Auto sales were also higher, propelled by reductions in sales taxes and other government incentives.

China's global trade surplus in May narrowed by 33% from a year ago to $13.4B, slightly ahead of April's excess of $13.1B. Exports to the U.S. were reduced by 26.9% to $16.7B, narrowing the trade surplus by 23.7% from last year’s imbalance of $10.9B.

Furthermore, exports to the 27 countries making up the European Union, plummeted 41.3% to $17.3B, reducing the trade gap with Europe by 39.3% to $7.7B.

The Shanghai index gained 0.2%, or 6.53 points, to 2,744.40 for the week, while the Shenzhen Composite Index fell 1% to 922.62.

2009 Better Trades Article

brought to you by

BRIAN MULLIN