BetterTrades

August 20, 2009

In news from abroad, the global markets rebounded throughout the September 9 trading session, as the price of gold remained near the $1,000 an ounce mark. The U.S. markets reversed a dismal opening to end the day in the green.

Across the pond, the cost of interbank borrowing for the Euro, the Dollar and the Sterling for three months, a.k.a. the LIBOR rate, receded on Wednesday to a new low. The overnight rate slipped to 0.27% from the previous day’s rate of 0.4825%, as the European Central Bank was responsible for removing more than $200 billion Euros from money markets.

The rate reduction is used to record the three-month premium that is paid over the anticipated Overnight Index Swap (OIS) and is a barometer for the willingness of banks to lend funds to each other. An increase in rates indicates a declining inclination to lend to other banks.

Throughout Britain, the Nationwide Consumer Confidence index inched higher in August to a reading of 63, up from the previous month’s reading of 61, its highest level since May 2008. The index reveals that Britons are more upbeat about the current and future economic conditions of the country and appear to be more willing to spend, despite the recession.

In a separate report, England’s survey performed by the Recruitment and Employment Confederation showed that the number of job hirings in August advanced during the month, the first time in over a year that the survey’s reading has increased.

In Germany, the country’s Finance Minister, Peer Steinbrueck, announced early Wednesday morning that the nation expects General Motors to repay a 1.5 billion Euro loan made to Opel in order for the company to continue to hold their European operating unit.

At the same time, GM’s board of directors are in discussions to compile multiple outcome scenarios for the German-based Opel, two of which are keeping the company or allowing it to retreat into bankruptcy protection.

Within the markets, European stocks advanced 0.4% on Wednesday, posting gains for the fourth consecutive day, as the FTSEurofirst 300 ended the session at 986.99. The September 9 closing advanced just a few points above an 11-month high of 986.56 reached in late August.

The FTSEurofirst 300, after reaching a multi-year low in early March 2009, has surged more than 53% since then, yet still remains more than 16% lower than the level it was trading at before the market’s collapse, following the credit crisis throughout the world.

Elsewhere in Europe, Britain's FTSE 100 index added 1.2% at 5,004.30, while Germany's DAX index gained 1.7% at 5,574.26, and France's CAC 40 surged 1.3% at 3,707.69.

To date, the FTSEurofirst 300 has advanced 19%, while the FTSE 100 is higher by 12%, and both the DAX and the CAC are up 14% each.

Looking inside the Asian markets, the Nikkei 225 dipped nearly 0.8% by the close of the September 9 trading session, hurt primarily by the increased strength of the yen. By the close, the Nikkei lost 81.09 points to 10.312.14, while the broader Topix slipped 0.7% to 939.84.

In related news, Miyako Suda, a board member for the Bank of Japan (BOJ), announced that she does not feel it would be in the best interest of the country to discontinue the central bank’s implemented measures designed to help ease the credit strains throughout the country.

"I have absolutely no pre-set idea (on the timing) of ending the steps. Japan's financial conditions are in the process of improving," Suda stated. The BOJ began buying corporate bonds back in January in order to help the credit crunch. The actions taken have done little to ease the strains placed on the country since the global financial crisis began.

Closer to home, Toronto’s main stock index, the TSE 300, tried to remain in positive ground throughout the day, but could not hold momentum heading into the close. At the conclusion of the trading session, the index was down 0.5% at 11,045.22, as investors were reluctant to expand the indices’ four consecutive gains due to advancing commodity prices.

In South America, officials from the IMF, the International Monetary Fund, confirmed on Wednesday that the country has managed to weather the global economic crisis quite well, due in large part to the country’s prominent steps taken to combat the downturn.

The most recognizable step taken by the Chilean government was the reduction in interest rates, which were cut by 7.75 percentage points and now sits at an all-time low of 0.5%. Government officials also announced that a proposed stimulus package could be in place within the coming months. In efforts to stimulate growth, Chile will provide their residents a package equivalent to 2.9% of the country’s GDP.

“The Chilean economy is well placed for an early return to sustained growth on the heels of the strong countercyclical measures adopted by the authorities and the expected recovery of its main trading partners," announced the IMF.

Fund officials later added, "(IMF) directors endorsed the Central Bank of Chile's decision to implement alternative means of monetary easing to support activity and a return of inflation to the target, noting the staff's assessment that the exchange rate is broadly in line with fundamentals. Once the recovery is well entrenched, (IMF) directors saw scope for unwinding those measures and specifying a structural target to preserve fiscal credibility and address long-term fiscal pressures."

Inside the crude markets, the price of oil pushed higher on Wednesday, adding to the previous session’s gains. The September 8 closing price on the October contract added $3.08 at $71.10. The following day’s trading added to that, climbing $0.27 to settle at $71.37 a barrel.

The increase in the price of crude was a direct result of the decline in value of the U.S. Dollar. Heading into the early evening trade, the 16-nation Euro reached a new yearly high versus the greenback, buying $1.4600, before retreating marginally to $1.4551.

In additional Forex trading, the Dollar slipped to 92.05 versus the Japanese yen from the prior day’s price of 92.50, marking a new seven-month low. Trading against the Sterling, the British pound bought $1.6533, up from last night’s price of $1.6507.

Even lesser traded currencies advanced against the Dollar, as the Australian dollar hit a 13-month high of $0.8668 and the New Zealand dollar climbed to $0.7007. The greenback also slipped to 1.8355 Brazilian Reals from 1.8260 Reals late Tuesday.

2009 Better Trades Article

brought to you by

BRIAN MULLIN