BetterTrades

August 30, 2009

The first trading day in the final quarter of the year brought sorrow to investors around the world. The U.S. markets were weighed down by several disappointing economic reports that pushed the major indices lower by the close by more than 2% each. The world markets were then affected by the American exchanges but managed to receive poignant information pertaining to future events and predictions.

In Ireland, a vote on the ratification of the Lisbon Treaty relies almost entirely on the feet of the Irish people. Opinion polls show that the country will most likely vote in favor of the treaty, after Ireland originally rejected the treaty in 2008. Treaty will need to be unanimously voted on by all 27 European Union states for the ratification to take affect.

The Lisbon Treaty, which was first proposed in 2007, was created to increase the majority vote in the Council of Ministers from 55% to 72%, increase involvement from the European Parliament in legislative procedures, eliminating the pillar system, which is a division of EU policies that are separated into three departments, or pillars. The treaty was also designed for the creation of a President of the European Council and a High Representative of Foreign Affairs.

If Ireland votes yes on the treaty, it would most likely end up at the doorstep of either Poland or the Czech Republic as to whether or not the Lisbon Treaty is finalized. Polish President Lech Kaczynski said he would most definitely ratify the treaty if Ireland signs it. Nevertheless, Czech President Vaclav Klaus could still refuse to give endorsement of the treaty.

In an announcement from the International Monetary Fund (IMF), the world economic organization stated that the global economy has already stated to recover from the worst recession on record, but warned that the rebound is dependent on how countries balance their growth.

According to the IMF’s World Economic Outlook, global output is projected to contract by 1.1% in 2009, but not before expanding by 3.1% by the end of 2010. The latest forecast is revised from a previously stated contraction rate of 1.4% in 2009 announced back in July. The Fund also predicted that expansion in 2010 would only reach 2.5%.

Olivier Blanchard, the IMF’s Chief Economist remarked, "The recovery has started. Financial markets are healing and in most countries, growth will be positive for the rest of the year as well as in 2010. If you think about global rebalancing, you realize it is going to have to come from a number of measures and from a number of adjustments. It is very hard to see how this could happen at the current exchange rates."

The IMF upwardly adjusted their forecasts based on mild improvements within the major world economies. The revisions were aided by a better than expected contraction within the Eurozone’s manufacturing industry, while Asia’s production surged in September, as did U.S. manufacturing.

It has become apparent that the world’s economic recovery will be placed on the shoulders of emerging and developing countries. The IMF is looking for these counties to expand at a 1.5% rate this year, and upwards of a 5% growth rate next year, with China and India as the front-runners. China is expected to grow at 9% rate next year.

Looking further inside the Eurozone, the European Union Statistics Office reported that the unemployment rate throughout the 16 participating counties, reached a 10-year high in August, posting a 9.6% rate. Economists are warning that the rate could climb higher, which could hamper the regions recovery efforts.

In August, the region shed 165,000 jobs, bringing the total number of out-of-work people to 15.17 million. Throughout the EU, which consists of 27 countries, the unemployment rate stood at 9.1% in August, up marginally from the previous month’s rate of 9.0%.

The countries suffering the most from the global crisis remains to be Spain, whose unemployment rate sits at 18.9%, while Ireland’s is 12.5% followed by Germany at 7.7%.

Philip Shaw, an economist with Investec relayed his thoughts on the current situation in Europe, "The European Central Bank will take into consideration...that unemployment is a hugely, politically emotive issue, so it will be a factor in the pot when monetary policy is discussed but it is not the overriding indicator."

Shaw added, "We see ECB policy on hold for the foreseeable future. The ECB is unlikely to tighten policy before it is confident the financial crisis is over, before it is confident that recovery has the necessary traction to be self-sustaining."

With that being said, the European markets retreated throughout the October 1 trading session, as weakness from commodities and a resurfacing of nervousness embattling investors.

The FTSEurofirst 300, an index of the top European shares, was down 1.5% at 982.21 points, after climbing to an intraday high of 1,005.00 points. The index receded 0.5% on September 30, and was down 45% last year alone, has managed to surge 17.3% between July and September, the best quarterly performance in nearly 10 years.

As European markets declined, so too did the value of the Euro when traded against the Dollar. By early evening, the 16-nation Euro traded at $1.4590, down from the previous session’s price of $14646. Furthermore, the Sterling retreated versus the greenback as well, as the British pound was priced at $1.5966, down from $1.6008.

2009 Better Trades Article

brought to you by

BRIAN MULLIN