Volume 07 (2009, Week 07)

Turbulent week for Stock Markets
FTSE 100 loses more than 7% this week and dives under 4000 mark.

This week, stock markets plunged all over the world on further bleaks news on the world economy. Earlier this week, US stimulus package worth $787 (small than its original size) was legalised by President Barack Obama. However, there wasn't any positive reaction from the markets. First, the Congress passed the bill last week, so this week's legalisation was not much more than a symbol. Second, it is significantly smaller than its original size (and much smaller than some people claim to be necessary in order to revive the US (and global) economy). Third, it lacks certain clarification despite being 1100 pages long. It is the uncertainty, that is harming the economy and financial markets in the last 6 months and both the US fiscal stimulus package and new banking bail-out plan, worth $1.5 trillion, by US Treasury Secretary Tim Geithner lack clarity which is so-much-in-need.

This week, new results came out on Japan's economic state, and it is worse than expected. The second largest economy in the world fell by 3.3% from the previous quarter, which is equivalent to 12.6% fall at annualised rate - horrifying contraction. Its industrial output fell by more than a fifth in the year to December 2008.

Two graphs from Economist.com

Other Asian tigers are suffering too. South Korean GDP fell by 20.8% at annualised rate in the last quarter of 2008, while its industrial production fell by 18.6% in the year to December 2008. Taiwan saw its economy shrink by 8.4% in the year to the last quarter of 2008.

I am expecting to see a bounce back in stock markets next week or week after despite economic turmoil.

Volume 06 (2009, Week 06)

Banks continue to suffer
Swiss bank UBS announces the biggest loss in Swiss corporate history.

Swiss banking giant UBS announced annual net loss of SFr 19.7 billion (£11.8bn), the biggest in Swiss corporate history. Lloyds Banking Group announced the expected loss from HBOS is staggering £10bn, 6 times higher than the expected loss just three months ago, in November. Lloyds Banking Group was formed by the merger between Lloyds TSB and HBOS (Halifax and Bank of Scotland) in January 16th. The market reacted very negatively bringing down its shares by more than 40% at one moment, hitting a low of 54.90 pence a share on Friday just after the news was announced. The shares of other banks suffered as well on Friday.

However, not all the results from the banks are gloomy this week. Lloyds said that its Lloyds side business is expected to make a profit of £1.3bn. On Monday (February 9th), Barclays reported a pre-tax profit of £6.1bn. 2 weeks before the announcement, the bank's chairman Marcus Agius and chief executive John Varley sent a joint letter to investors assuring that Barclays will make a profit more than the expected £5.8bn profit despite huge write-downs by its investment arm, Barclays Capital.


Central Banks continue to cut their interest rates
Sweden's Riksbank and the Bank of Korea join the list of central banks who cut the benchmark interest rate this month.

Swedish Central Bank, Riksbank cut its base rate by a full percentage point to only 1% and says further cuts are possible. The Bank of Korea cut its rate by half a percentage point to 2%, the record low level. It is very low by the standard of developing world. But maybe, South Korea should no longer be classified as a "developing" country, it ranks as the 13th largest economy in the world with GDP of close to $1 trillion despite having not so big population, just under 50 million people (the 24th most populous country). It is the 7th largest exporter and 8th largest importer. Its financial situation is much closer to the US or UK, rather than Asian economies, with a high level of debt whereas Asian countries tend to have a huge level of savings.


Unemployment continues to rise
Millions lose their jobs worldwide.

UK unemployment rate has increased to 6.3% by December 2008, the highest level since 1998 with 1.97 million people jobless. It is slightly better than many analyst's prediction of passing the 2 million mark. But it may have already passed that number by now, as the figure is for December 2008. Tony Dolphin, the senior economist at the Institute for Public Policy Research said: "Unfortunately it seems inevitable that unemployment will exceed 3 million during 2009".

US unemployment rate has reached 7.6% in January, as a result of 600'000 jobs loss. General Motors is one of the lates companies to announce huge job cuts. GM is going to shrink its workforce by 10'000 about 1/7 of its workforce. Even Japanese firms are cutting jobs aggressively, for instance Nissan is cutting 20'000 jobs worldwide amid its forecast of 265bn yen (£2bn or £1.2-£1.3bn if it was a year ago). In the last quarter of 2008, its car sales was down by almost a fifth.

Exports, imports and industrial output continue to fall by alarming rates everywhere. Europe's biggest economy, Germany saw its industrial output down by 12% in the year to December 2008. World's second largest exporter China saw its export plunge by 17.5% in January compared with a year earlier, meanwhile its imports fell by alarming 43.1%. China was the third largest importer in 2007, however with its import down by more than 2 fifths, it may see itself sliding down the list.

Things will get much worse. Those results are only the early indication of the recession started at the second half (or the last quarter) of 2008. However the falls in industrial output and trade will slow down, as many firms start ordering new stocks. Many firms were and still some are running on their huge pile of stocks when recession hit, rather buying new stocks and now many have run down most of their stocks. The chance of us seeing recovery in the latter half of 2009 is getting slimmer by day, as new results come out, most of the time far worse than expected (last year, or even just 6 months ago no-one on Earth would have guessed that China's import will be down, let alone guessing the 40% fall in January 2009).

Volume 05 (2009, Week 05)

Another interest rate cut
The base rate set by Bank of England hits new historic low.

On this Thursday (February 5th, 2009), Bank of England cut its base rate by 0.5 percentage point to 1% on its monthly meeting of Monetary Policy Committee. This is the 5th consecutive cut since October last year, when it stood at 5%.

This cut shows how severe the UK economy condition is and how desperate the Central Bank is during this difficult period. As I argued earlier on, I don't think it is going to have any significant impact.

Many financial institutions, especially the smaller ones, opposed to the cut. But Bank of England went ahead anyway. It is very unlikely that these small institutions will pass on this 0.5% cut on their interest rate, as they're already struggling.

Meanwhile, the Reserve Bank of Australia cut its benchmark rate by a full percentage point to 3.25%, Norway's Central Bank cut its rate by a half percentage point to 2.5% and Indonesia's Central Bank cut its intreset rate by the same amount to 8.25%.