BetterTrades

July 9, 2009

Mirroring the actions of the U.S. stock markets, traders within the global stage have been able to post substantial gains over the past several sessions. The upswing was led by the European markets, which were able to add to previous gains on the backs of higher energy shares.

The biggest news of the week came from the U.K., where the Bank of England (BOE) announced that the key interest rate would stay at the record low of 0.5%. The BOE also confirmed that the bank would not expand the nation’s 125 billion pound infusion of capital into the British economy.

Many economists were shocked that the bank selected not to instill an additional 25 billion pounds, $40.5B, into the weakened British financial system. The nation’s government made available some 150 billion pounds back in March to be used for asset purchases.

Ian McCafferty, chief economic adviser to the Confederation of British Industry stated that, "A further extension through the autumn is needed, and clear communication of the Bank's intentions throughout will be critical in order to prepare the markets." The Confederation of British Industry is the country's biggest business lobbyist group.

"The economy is taking some strong medicine with quantitative easing and it is difficult to predict exactly when it will be healthy enough to stop," affirmed Benjamin Williamson, an economist at the Centre for Economic and Business Research in London,

Throughout the first full trading week in July, European stocks showed some resiliency towards the end of the week, as the FTSE rebounded from 10-week lows posted earlier in the week. The FTSE fed off the U.S. markets’ upswing, as well as from reassuring results from Alcoa Inc. (AA), which kicked off the U.S. earnings season on July 8.

By the close of trading, the FTSE 100 climbed nearly 0.5%, ending the session at 4,158.66. During 2008, the benchmark index lost more than 45%, due to the unremitting decline in the world’s economy. However, since hitting a record low in early March, the index has posted a 28% gain.

"The market is expected to remain volatile in the near term. Alcoa results were better than expected, but it is not just one result that will make a difference. If you have got about a quarter of results, then probably you could have some trend," iterated Luc Van Hecka, chief economist at KBC Securities.

Hecka went on to add, "The big question remains how the recapitalization of, especially, the European banking system will be done."

Elsewhere in the world, Japanese officials are concerned that the nation’s unwarranted price moves in their currency could lead to an unstable situation within the country’s financial and economic markets. During the week, the yen surged to a five-month crest at 91.80.

An increase in the price of the yen has placed added pressures on the economy and may jeopardize Japan’s chances of exiting the current recession. If the price continues to advance, Japan’s government could be forced into devaluing the yen in order to stabilize their currency.

“As I have said before, excessive moves in market rates have a bad impact on the stability of the economy and financial conditions and therefore are undesirable," confirmed Chief Cabinet Secretary Takeo Kawamura. He also added that, "We'll keep a close watch on currency market trends."

In January of this year, the yen reached a 14-year high versus the U.S. Dollar near 87. Although Japan’s representative have repeatedly stated that the government will not intervene in the currency markets, officials have noted that with the country’s dire export industry, actions could be taken in order to solidify the yen’s global strength.

At the end of trading, Japan’s benchmark Nikkei 225 was down nearly 1.4%, losing nearly 130 points to end the session at 9,291.06.

In Germany, government official claim that the nation has emerged from the global recession, as Europe’s largest economy showed signs of recovery in the 2Q with exports increasing.

"Gross domestic product could have been flat or may have even grown very slightly in the second quarter," a German government official announced. "This isn't an upswing yet, it's normalization after the big economic slump."

German Chancellor Angela Merkel. “All were of the view that the crisis is a long way from being over. With luck, we have reached the bottom."

At the end of the July 9 trading session, Germany’s leading market, DAX, was up almost 1.3% on the day, adding more than 57 points to close at 4,630.07.

2009 Better Trades Article

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BRIAN MULLIN