BetterTrades

August 11, 2009

Throughout the world, global economies surged during the start of August’s trading. In England, Britain’s FTSE 100 added nearly 1% in trading to close the August 6 session at 4,690.52, after reaching a yearly high of 4,629.58. Thursday’s trading was propelled by the strengthening of banks following the Bank of England’s (BOE) announcement to increase their government aid funds by 175 billion pounds.

Known as the quantitative easing program, the BOE confirmed that the financial stimulus plan would increase the bond purchasing initiative from 125 billion pounds to 175 billion pounds. The bank also affirmed that the country would hold steady their interest rate at 0.5%.

The Sterling slipped in value versus the U.S. Dollar following the BOE’s announcement. By early evening, the British pound retreated to $1.6777 from the prior day’s trading price of $1.685. During the August 5 trading session, the pound reached a 10-month high just above $1.70, before sliding at the close.

European equities were on the rise by the conclusion of the August 6 trade session, as the FTSEurofirst 300, an index of Europe’s top shares, closed 0.4% higher at 938.56. The equity market posted its 14th session in the green out of 19, supported by encouraging macroeconomic data, most noticeably from the U.S. The index is currently 45% above its record low in March, yet sits 43% below its peak in 2007.

Andrew Bell, head of research at Rensburg Sheppards commented on the market’s move, “Over the last month, people have become more convinced that some sort of a recovery is on its way and a second wind has come into the market. I don't think that it's about to win a gold medal for a sprint, but at least the economy is off the injury list and shows signs of convalescing."

Within the Eurozone, the European Central Bank (ECB), declared that they too were keeping their interest rates at their current levels, 1%, as the economy throughout participating countries would remain weakened during the remainder of the year.

Since last October, the ECB has reduced interest rates 325 basis points, yet they remain the highest among the world’s largest developed countries. Despite the lowered interest rates, the Eurozone’s GDP contracted 2.5% during the 1Q, as the ECB confirmed that the current rate would remain in place until the end of the 3Q of the following year.

ECB President Jean-Claude Trichet responded to the rate hold, "Current rates remain appropriate. Economic activity over the remainder of this year is likely to remain weak, although the pace of contraction is clearly slowing down."

Trichet added, "We expect the current episode of extremely low or negative inflation rates to be short-lived and price stability to be maintained over the medium term." In reference to a rate increase in 2010, Trichet stated, "After a phase of stabilization a gradual recovery with positive quarterly growth rates is expected."

The Euro traded lower versus the greenback on August 6, but only after reaching a new 2009 high against the U.S. Dollar in the previous session. By late afternoon, the Euro was valued at $1.4405, down from Wednesday’s price of $1.4433 and from its high of $1.4446 as well.

In a report from the EU’s Eurostat, retailers throughout the 16-nation Eurozone witnessed retail sales decline in June, continuing with a trend that has progressed since the start of the year. Data revealed that sales volume dipped 0.2% in June, while falling 2.4% from June’s reading a year ago. May’s sales were down 0.5%.

Even with falling prices throughout the Eurozone, as inflation slipped 0.1% from the previous year’s rate, consumers remain reluctant to spend. A key component to the lack of spending is coming from those without jobs, as the unemployment rate throughout the countries sits at 9.4%, averaged out.

On a positive note, the European Union as a whole, which includes 27 countries, saw retail sales increase 0.1% in June. Over the past year, sales within the EU have fallen 1.7%. Europe’s largest economy, Germany, saw sales recede 1.8% from May to June.

North of the boarder, Toronto’s largest stock exchange, the TSE 300 composite index, slipped more than 250 points, ending the session at 10,793.37, lower by 2.3%. The day’s big move downward was increased by a slew of corporate earnings results, as well as from a dividend cut from one of the country’s top financial firms, Manulife Financial. The stock fell more than 8% by the close.

Prior to the downtick during the August 6 session, the Toronto Stock Exchange (TSX) had posted gains over the past four trading days. Since hitting its low in early March, the exchange is up more than 40%, while being up 20% since the start of 2009.

In currency trading, the U.S. Dollar increased in value versus the Canadian dollar, buying 1.0782, up from the previous day’s trading value of 1.0698.

Heading across the Pacific, Japan’s Nikkei 225 reached a new 10-month high following the August 6 session, closing at 10.388.09, up 1.3% or 135 points. The day’s drive higher was propelled from the country’s automakers, such as Honda, Toyota and Nissan, which was aided by U.S. discussion about increasing the “Cash for Clunkers’ program.

By the close of trading, shares of Honda were up 3.7% at 3,110 yen, while Toyota’s stock gained 3.8% to 4,130 yen. Nissan Motors saw their stock price advance 3.1% to 702 yen.

Kazuhiro Takahashi, GM at Daiwa Securities SMBC replied, "Auto shares gained as investors were encouraged by news that the United States would vote on the auto sales incentive bill tonight.”

In Forex trading, the U.S. Dollar advanced against the Japanese yen, buying 95.48, up from the previous day’s trading price of 94.83.

2009 Better Trades Article

brought to you by

BRIAN MULLIN