Sterling has taken a bit of a hit this week falling by over 3% against the Euro to under €1.08 to the Pound and to less than US $1.40! However, the stock markets were on on the week with the FTSE 100 closing 6.3% ahead at the end of the week. The Dow Jones was up by over 9% in the week showing some renewed confidence in the economy – Perhaps?

End of the week saw:
Stock exchanges:
FTSE 100: 3,754
DOW: 7,224
S&P: 756.55
Nikkei: 7,569

Currencies
UK Sterling £ to US Dollar $ 1.39570
UK Sterling £ to Euro € 1.07956
UK Sterling £ to Japanese Yen 136.737
UK Sterling £ to Aus $ 2.12377
US Dollar $ to Euro € 0.773485
US Dollar $ to Japanese Yen 97.9700
US Dollar $ to Aus $ 1.52165

Commodities
Nymex Crude oil – $45.80
Gold – $928.10

The 2008 year ended with one of the biggest economic busts of all time and in the UK under a government that pledged “No more boom and bust”. I think that a government that even thinks like that is flawed from the start. If you look back through history economies always go through cycles of ups and downs and at certain points boom and inevitably then a bust.

The government could have see this coming and the Bank of England should have acted sooner. Admitely the scale of the present problem has taken every one by surprise, but there is no excuse for having an economy in such a bad state so that when the “Bust” happens the government has to borrow to such high levels that it puts the whole country in trouble.

So what else happened of significance in 2008…

America elected it’s first black president in 2008, Barack Obama, and as he takes office in a few days time he has one hell of an economic situation to sort out and a Middle East problem to resolve yet again.

One of the the UK’s oldest high street chains went into receivership, Woolworths which was first set up by Frank W. Woolworth in 1909 so it has just about survived 100 years of trading. Something I only learned recently was that Mr Woolworth paid for the building of the Woolworth Tower in New York, which was the highest building in the world up until 1930. What is even more unusual is that Mr Woolworth paid for this building in “cash” and at a cost of $13.5 million was quite unusual and in todays terms using the Consumer Price Index is worth over $300 million (£208 million), and using the relative share of GDP would be worth near $8 billion (£5 billion).

After the colapse of Sub-prime loans in the US a World banking crisis ensued with governments around the world pledging unpresidented amounts to shore-up the banking system. With the UK government topping the list at $725 billion and in second place the US government setting aside $700 billion, with Germany and France setting aside $360 billion and $250 billion respectfully. Fall-out from this crisis hit the 150-year-old investment bank Lehman Brothers, the fourth largest bank in the US which filed for bankruptcy in September 2008!

Low, low interest rates in 2008…

2008 saw deep cuts in interest rates with the lowest rate ever seen in the USA closing at 0.25% leaving the US treasury not much more room for movement in a difficult economic environment. The UK also saw the lowest interest rates it has seen for 57 years falling to 2% in December 2008, with the Bank of England commenting that these rates could fall lower still.

Stock markets in a turmoil…

World stock markets saw both huge losses and huge gains during 2008 ending the year at 4,434 in the UK with the FTSE 100 and in the US at 8,776 on the Dow Jones. In October 2008, just after Wall Street saw the worst week in the stock market’s history, the Dow Jones rose by a record 11% or 936 points on the day, which was the biggest one-day gain seen by the index since it began. Also, the UK’s FTSE 100 jumped by 9.84%, which is the highest jump it has seen in its history in November 2008.

Oil price volatility…

The price per barrel of oil has seen an all-time high of $147 per barrel in 2008 and has dipped to below $40 to the end of December 2008 and closed the year at $44.60, only rising slightly as a result of the unrest and fighting in the Middle East. There were predictions of the price per barrel falling to $25 and if Israel and Hamas can agree their differences in the short-term the price per barrel could quite easily fall to below $40 per barrel again soon.

End of the week saw:
Stock exchanges:
FTSE 100: 4,434
DOW: 8,776
S&P: 903.25
Nikkei: 8,860

Currencies
UK Sterling £ to US Dollar $ 1.44950
UK Sterling £ to Euro € 1.03739
UK Sterling £ to Japanese Yen 131.846
UK Sterling £ to Aus $ 2.05640
US Dollar $ to Euro € 0.715690
US Dollar $ to Japanese Yen 90.9783

Commodities
Nymex Crude oil – $44.60
Gold – $884.30

This has been a good week for World Stock markets with the UK’s FTSE 100 rising by 13.4% this week and the US Dow Jones climbed by 9.7%.

In the same week Sterling has strengthened slightly against the US Dollar and Euro and the price of a barrel of oil rose by around $5 representing a 10% gain on the week. Although in a meeting in Egypt this Week Opec President Chakib Khelil left oil production unchanged, leaving any decision for a reduction to be made at their next meeting in December.

Bad news on the high street

One of Britain’s iconic high street chains has gone into liquidation, but there is some light at the end of the tunnel for Woolworths with a rescue bid by Dragons Den entrepreneur Theo Paphitis, who is known for taking over troubled chains and turning them around. Mr Paphitis has turned Rymans and La Senza’s fortunes around in the past so it is no surprise that he is in talks with receivers on this one. The government has also announced this week that is preparing to draw up a list of industries that it is prepared to help through this financial down turn.

Short-term tax reductions with higher taxes in the future

Next week the UK will see a lower VAT rate of 15%, with some shops bringing in the reduction early to entice shoppers to spend more. However, the country will have to pay for these tax reductions and extra spending in the future and in particular the higher rate income earners will be targeted with the introduction of a 45% tax band! Some good news though from across the pond with the US holiday season shopping getting off to a good start, rising 3% over the same time last year.

House prices in England and Wales fall by over 10%

In the year to October fell by just over 10%, with the average house price falling to 2006 levels at £165,529. One of the main causes for the fall is that house sales between May and August this year have dropped by more than 50% as a result of the financial crisis. However, the fall in November has slowed according to the Nationwide to just 0.4% over the fall of 1.3% in October.

Unrest in the world as the slowdown hits

China has already seen unrest amongst redundant workers as the world slowdown has hit China in a big way, with over 50% of toy manufacturers going in to liquidation and as recession bights things are expected to get worse. This week saw 500 workers over turn police cars outside of a toy manufacturer over a pay dispute.

End of the week saw:
Stock exchanges:
FTSE 100: 4,288
DOW: 8,829
S&P: 896
Nikkei: 8,512

Currencies
UK Sterling £ to US Dollar $ 1.53836
UK Sterling £ to Euro € 1.21130
UK Sterling £ to Aus $ 2.34940
US Dollar $ to Euro € 0.78740

Commodities
Nymex Crude oil – $55.00
Gold – $819.00

With the UK’s Chancellor pumping £20 billion into the UK economy with a VAT rate cut of 2.5% and the US Treasury bailing out Citibank in America with a $20 billion share investment in the troubled bank, world stock markets have soared.

The Uk’s FTSE 100 jupmed by 9.84%, which is the highest jump it has seen in its history, European shares rallied too with the German Dax rising by 10.34% and the French Cac 40 posting a 10.09% gain. The Dow has risen by just under 5% today, but had posted a large gain of over 5% on Friday of last week on the news of the Citibank investment, after European markets had closed.

This week saw Citibank announce 52,000 job losses after reporting a £13.3 billion loss and 10,000 of those will be in London.

The world stock markets saw another turbulent week with the London FTSE 100 down by 10.6% this week and the Dow Jones by 5.3%, although the Dow was saved at the end of the week by a rally on Friday of 6.5% on the news of Barack Obama appointing his treasury secretary Timothy Geithner.

Do you fancy buying a household name for just £1!

This is the price that restructuring specialists Hilco were prepared to pay for Woolworths this week, as we see another household name in trouble. Woolworths is in discussion with its banks to avoid going into receivership after suffering huge losses with first quarter losses extending to over £90 million. Woolworths has been struggling for some time, but with recent economic events and a further downturn on the high street the company has arrived at a tipping point!

Tax cuts now for tax rises in the future!

The UK’s Chancellor, Alistair Darling, is about to announce his tax cutting and public spending increasing budget in order to boost the UK economy. Mr Darling is looking at spending his way out of economic gloom, but the tax cuts will be short-lived and with Government borrowing at extremely high levels and having risen by a further £1.4 billion in October.

Bucking the high street trend

There are two companies that have bucked the trend this week with Mothercare reporting a doubling on profits this week to £9.5 million over the same period last year and GAP have increased net income to $246 million, up from $238 million last year. GAP’s sales were down by 8% though and the net position was improved due to a cost cutting exercise.

Oil remains volatile

The barrel price of oil remains turbulent this week with the price dropping below $50 a barrel this week for the first time since 2005. Opec are looking to make further cuts in oil production in order to shore up the barrel price, as Opec member oil producers are feeling the pinch after seeing the price of oil fall by nearly 66%.

Inflation on its way down

This week saw some good news on the inflation front from the UK after it fell by more than expected to 4.5% from a high of 5.2%. The Bank of England have hinted at further interest rate cuts to the UK’s base rate though and Treasury Select Committee chairman, John McFall has said that banks must start lending or face nationalisation.

End of the week saw:
Stock exchanges:
FTSE 100: 3,781
DOW: 8,046
S&P: 800
Nikkei: 7,911

Currencies
UK Sterling £ to US Dollar $ 1.48129
UK Sterling £ to Euro € 1.18366
UK Sterling £ to Aus $ 2.36933
US Dollar $ to Euro € 0.799070

Commodities
Nymex Crude oil – $50.29
Gold – $801.80

The financial quake of the past year has toppled almost all the world’s stockmarkets. In the 12 months to the end of July, only 10 bourses stayed in positive territory, all of them in emerging markets. Half were in the Middle East, two in north Africa, plus Bangladesh, Slovakia and the Bovespa in São Paolo – none of them, with the exception of Bovespa, in red-hot economies.

“Most of these markets are somewhat obscure,” said Nick Parsons at NAB Capital. “I think that is a fair characterisation rather than a slur.”

The FTSE 100 declined by 16.5% over the past year but was still a better performer than the other main European indices. The main reason is that London is home to eight mining and commodity companies at a time when natural resources prices have been soaring.

According to numbers crunched by Merrill Lynch, 70% of profits in the FTSE 100 this year will be made by resources companies. “If you buy the FTSE, you are not buying the UK economy,” said chief investment officer Gary Dugan. “It is now very heavily weighted toward resource stocks.”

The stockmarkets in the big emerging markets of India and China have both fallen back as foreign investors have fled – Shanghai has dropped 35.1% over the past year. “It is a truism that emerging markets hold up until they don’t,” said Parsons. “They are largely about momentum and as long as they are going up they are doing well. But when they fall, they fall the furthest.”

The most robust of the bric economies (Brazil, Russia, India and China) has been Brazil. The Bovespa index is 5% up on a year ago, though it too has been falling pretty sharply in recent weeks, losing 20% of its value since the beginning of May.

The strong performance of the Middle Eastern markets can chiefly be explained by high oil and gas prices, though some have also opened up further to foreign investors over the past 12 months.

Parsons says the relative obscurity of the 10 outperforming markets has played to their advantage. “The ones that became hot spots then collapsed. Vietnam doubled and halved. Shanghai tripled and then halved again. The stockmarkets that didn’t attract large amounts of foreign investors in the past weren’t subject to the same excess or capital flight.”

Ian Harnett, co-managing director at Absolute Strategy Research, notes that the markets that have held up are all relatively small and illiquid, which means they could be more sensitive to inflows and outflows of capital. “Our view is that oil prices are likely to fall and they could be in for a rocky ride.”

The Irish exchange has dropped by 46.1% as the Celtic tiger appears to have lost its roar. At the bottom of the list though is the Iceland All Share, which has lost 52.3% of its value.

Iceland’s economy expanded rapidly on the back of high borrowing rates and is now facing potential difficulties refinancing its debts. It has been likened to the canary in the coal mine, an early warning signal for the global economy. Investors will be hoping that the comparison is unwarranted.

News reported by The Guardian, David Teather

Four of Britain’s biggest banks will ask for up to £50bn of taxpayers’ money as capital to boost their balance sheets, the BBC has learned.

Royal Bank of Scotland (RBS), HBOS, Lloyds TSB and Barclays are in talks with the Treasury, the Bank of England and the Financial Services Authority.

An announcement is planned before the markets open on Monday, according to BBC business editor Robert Peston.

Meanwhile, Lloyds TSB wants the terms of its HBOS takeover renegotiated.

It wants to secure the buyout for a smaller fee, given that HBOS is being forced by the Government to raise as much as £12bn.

If an agreement is not reached, the takeover could collapse.

Under pressure

On top of the cash to be raised by HBOS, Mr Peston said RBS is likely to get in the region of £20bn and Lloyds TSB about £5bn.

Barclays was under pressure from the Treasury, Bank of England and Financial Services authority to raise up to £8bn, he added.

The government is not expected to insist on having its own appointees on the boards of the banks, although other strings are likely to be attached.

A key aspect of the announcements will be what the government requires the banks to do in return for the cash.

“What a sorry end to Britain’s longest ever period of unbroken economic growth” Robert Peston, BBC business editor

These could involve curbing executive pay and resuming normal lending to individuals and small businesses.

The government has said that it will negotiate terms individually with each bank that participates in the scheme.

“What we’re doing now is talking with all of the banks about how we implement the programme,” Yvette Cooper, chief secretary to the Treasury, told BBC1’s The Andrew Marr Show on Sunday.

“We’ll set out the sort of strings that will be attached on a case-by-case basis,” she added.

“What we’re doing over the weekend is looking at specifics,” Alistair Darling, chancellor of the exchequer, told the BBC in Washington after talks with President Bush and other G7 finance ministers on Saturday.

“We’ll be making an announcement at the beginning of the week,” he added.

Voting rights

The chief executive of RBS, Sir Fred Goodwin, is expected to resign to be replaced by Stephen Hester, the former finance director of Abbey who is currently chief executive of British Land.

Earlier in the year, RBS raised £12bn from its shareholders, which is now more than the bank is worth on the stock exchange.

Banks trying to raise new capital as part of the scheme may choose to approach their own shareholders again instead of taking part of the government’s £50bn.

If they go to their existing shareholders for funding, the government has said it will underwrite the issues, which means that if all of the shares on offer are not sold then it will step in and buy them.

That means that the government could end up owning large stakes in the banks and having extensive voting rights.

Hefty falls

This would be different to the preference shares that the government would get for additional capital.

The difference is that normal shares carry voting rights while preference shares do not, but preference shareholders, as the name suggests, get access to any money that a company makes before the normal shareholders.

If the agreements are reached ahead of trading on Monday morning, it will be just another factor for investors to take into account following the huge falls on stock markets last week.

The FTSE 100 in London fell 21.1% during the week, its worst weekly fall since the crash of 1987.

The Dow Jones in New York fell 18% in the week while the Dax in Frankfurt fell 21.6%.

News reported by The BBC

Concern returned to the US stock market as US Treasury Secretary Henry Paulson faced tough questions about his $700bn (£382bn) financial rescue plan.

The Dow Jones industrial average closed almost 1.5% lower after Mr Paulson was grilled by a Congressional hearing.

The plan faced opposition from both Republican and Democrat senators on the Senate Banking Committee.

Investors are concerned that the measures could now either be delayed or watered down.

“We have got to look at some alternatives,” said senior Republican senator Richard Shelby.

The committee’s chairman Democrat senator Chris Dodd, speaking after the hearing, said: “What they have sent us is not acceptable.”

Another senator asked if a smaller programme worth $150 billion might be enough to begin the bail-out, with a promise of more to come.

Mr Paulson replied that this would be a “grave mistake” and would fail to end the financial turmoil in the markets.

‘Private greed’

Senators voiced concerns that taxpayers would be paying the price of mistakes made by banks.

“I believe if the credit markets are not functioning that jobs will be lost…that the economy will just not be able to recover in a normal, healthy way” Ben Bernanke, US Federal Reserve chairman

Global reaction to financial turmoil

They also said it was crucial not to rush through the bail-out, without carefully considering how it would work.

Richard Shelby said: “I have long opposed government bail-outs for individuals and corporate America alike.”

And Chris Dodd said the “economic maelstrom” stemmed from a mixture of “private greed and public regulatory neglect”.

However US Federal Reserve Chairman Ben Bernanke urged swift action.

He warned that without the plan, the “fragile” financial markets would almost certainly get worse and this would have an effect on the rest of the economy.

“I believe if the credit markets are not functioning that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way,” said Mr Bernanke.

European markets were also hit by concerns about the bail-out plan.

The UK’s FTSE 100 closed down 1.6%, France’s Cac 40 fell 1.7%, while in Germany the Dax ended 0.5% lower.

Earlier in Asia, Hong Kong’s Hang Seng index ended nearly 4% lower. Japan’s market was closed for a public holiday.

News reported by The BBC

China’s main share index rose by almost 8% on Monday after the government moved to revive investor confidence.

The Shanghai Composite Index closed at 2,236.41, having jumped 9.5% on Friday.

News that the financial regulator planned to make it easier for state-owned firms to buy back their own shares helped to fuel the rally.

Elsewhere in the world, shares were mixed as investors mulled a US plan to free banks of their bad debt aimed at solving the world financial crisis.

Government intervention

Chinese banks were the biggest winners in the rebound, with Bank of China, Industrial & Commercial Bank of China and China Construction Bank all jumping by their daily 10% limit.

They gained from new rules that will allow state-run firms to buy back their own shares without first getting government approval.

It is the latest market-boosting move by Beijing, which last week scrapped a stamp duty on buying stock and said it would buy shares in three of the largest state-owned banks.

The intervention is aimed at shoring up confidence in domestic shares, which are down more than 50% from their peak earlier this year.

But some analysts were not convinced at how sustainable the rebound will be.

“Confidence is back, but the economy remains weak. Corporate profit growth at listed companies is slowing,” said said Chen Ge, fund manager at Fullgoal Fund Management.

Other Asian stock markets also gained on hopes that the ambitious US proposals to bail out troubled Wall Street banks will ease ructions in the banking system.

Japan’s Nikkei rose 1.4% to end at 12,090.59 points , while Hong Kong’s Hang Seng index rose 1.6% to 19,632.2

In Europe, a calm start to trading gave way to losses after a buying frenzy on Friday.

The UK’s FTSE 100 ended 75 points, or 1.4%, lower, at 5,236.3. In France, the Cac 40 closed 2.3% down, and the German Dax index fell 1.3%.

News reported by The BBC

This week has seen the biggest movements ever on the FTSE 100 – when at the end of the week the index jumped 8.8% on news of the US government has pledged to bail out the troubled US banking system!

The FTSE has been on a roller coaster starting the week at 5,417 and dropping to 4,880 during the week to jump 431 on friday to end slightly lower thatn the beginning of the week at 5311! Earlier in the week the Glbal Central banks pumped $180bn into the markets to lift the amount of funds available to the world banks. On Friday the US Treasury is proposing to buy back up to $800bn of the bad debt in the US mortgage market, as the US debt plan takes shape.

It will be interesting to see what happens in the mortgage markets over the coming months where we have seen a 36% slump in mortgage lending in August this year over August of 2007, once the above measures start to kick in. The lending market has stalled because banks are reluctant to lend to each other and the inter-bank lending rates are at a high – I was speaking to my friend in Australia and he commented that “getting a mortgage in Australia at the moment is like winning the lottery!”

The core assets and business of Lehman Brothers is to be purchased by Barclays Bank for $1.3bn, which incredibly includes Leham’s Manhatten Skyscraper worth on its own around $1bn! So in a market of turmoil the vultures circle and there are bargains to be had. Judge approves Lehman deal.

As with last week the travel industry has seen trouble with Italian airline Alitalia being on the edge of going into liquidation. What seems crazy is that there have been two rescue packages open to the company, which have been turned down by the unions to block redundancies. So the unions would rather sit there and block a rescue where a few jobs are lost in preference to the whole company going under where everyone losses their job! CAI consortium was only approved by 3 out of the 9 unions to block 3000 job losses!

On the bright side is that the petrol retailers have are reducing fuel at the pumps in the UK on the bakc of dropping oil prices. BP and supermarkets Asda and Morrison were leaders in cutting prices.

End of the week saw:
Stock exchanges:
FTSE 100: 5,311
DOW: 11,388
S&P: 1,255
Nikkei: 11,921

Currencies
UK Sterling £ to US Dollar $ 1.83070
UK Sterling £ to Euro € 1.26995
US Dollar $ to Euro € 0.69370