I have decided to include more of the world stock market indices this week, as my blog is starting to get read more and more across the world by people from the UK, Europe, America, Australasia and the Far East.

Notably this week is the fall in the value of the Yen against Sterling and the US Dollar, falling by over 4% against UK Sterling and by 2.5% against the Dollar. However, the US Dollar has suffered too this week and slid against Sterling by 1.6% ending close to $1.50 to the Pound for the first time in a while.

The reason for the weakening Dollar is due to the US economy contracting by more than expected at 6.1% in Q1 2009. Investors are focusing on a rise in private consumption for the first time since Q2 of 2008 combined with a sharp decline in private inventories.

In the short-run falling inventories hurt an economy and at a point where inventories have reached their optimal levels, companies will need to increase production to meet demand, as economies pick up again.

Due to the falling pace in contraction in the US economy The Federal Reserve is refraining from new stimulus announcements.

UK Sterling rose this week on comments by UK Chancellor Alistair Darling that he expects a UK economy to recover by the end of the year.
End of the week saw:
Stock exchanges:
FTSE 100: 4,243.22 GBX
FTSE 250: 7,571.33 GBP
UK All Share: 20,647.03 ZAX
US DOW: 8,212.41 USD
US S&P: 877.52 USD
US NASDAQ: 1,719.20 USD
Japan Nikkei: 8,977.37 JPY
China H Seng: 15,520.99
Australian ASX 200: 3,769.60 AUD
German DAX: 4,769.45 EUR
French CAC 40: 3159.85 EUR
Spanish Ibex 35: 9,038 EUR

Currencies
UK Sterling £ to US Dollar $ 1.49089
UK Sterling £ to Euro € 1.12313
UK Sterling £ to Japanese Yen 147.906
UK Sterling £ to Aus $ 2.03507
US Dollar $ to Euro € 0.753325
US Dollar $ to Japanese Yen 99.2063
US Dollar $ to Aus $ 1.36500

Commodities
Nymex Crude oil – $52.65
Gold – $887.90

We have by no means seen the end to the banking crisis, as we see the UK government increase it’s steak in the Royal Bank of Scotland (RBS) to 70%! RBS has converted the preference dividends into ordinary shares to avoid paying the £600 million a year 12% fixed dividend so as to increase lending.

So the UK is at the point of having its very first nationalised bank, as Gordon Brown prepares for a new bank bail-out package to encourage further lending. Across the Irish see the Irish Government is looking to Nationalise the Anglo Irish Bank, as funding problems continue with this bank. So we are far from out of the woods and I might go as far as to suggest that we might even be still on the way into the woods!

The government also revealed a £20 billion loan guarantee scheme for small and medium businesses this week designed to limit the risk to banks that lend to businesses with a turnover of less than £500 million.

Mixed retail news

Matalan reported this week that its sales in its five weeks to 4 January were up by 5.9% over the same period last year. Matalan has 203 stores across the UK and sells discount clothing. Primark has also reported an increase in its Christmas sales which were up by and incredible 18% over the 16 weeks period to 3 January. In contrast to this Next reported a 7% drop in sales between July 2008 and Christmas and M & S have reported third quarter merchandise sales down by 8.9%.

Good news on the jobs front, as Waitrose is on an expansion push and intends to add 4,000 jobs, as the company prepares to buy 13 stores from the Co-op and open a further 9 stores across the country.

Computers sector in a down-turn

Although less than expected, Intel reported a staggering 90% fall in the last three months of 2008 falling to $234 million (£158 million) from £2.3 billion (£1.58 billion). Sales of computers have dropped as business owners delay spending money on buying new equipment as do domestic users pull back on their own spending on computers.

A change across the pond in America as Barack Obama prepares to take office next week he has pledged to spend $100 billion (£67.5 million) of the remaining bank bail-out fund on tackling the US mortgage crisis. The US senate has already given Mr Obama their approval to spend the balance of this fund, which amounts to $350 billion (£236 billion). The senate has also revealed plans for an $825 billion (£556 billion) package for tax cuts and spending to stimulate the US economy.

This week also saw America’s largest bank knocking on the US governments door yet again, as the Bank of America is to receive a further $20 billion (£14 billion) US government funds and a further $118 billion (£79.6 billion) of guarantees against bad assets. Bank of America had one of the strongest balance sheets of all American banks up to taking over Merrill Lynch, which has posted huge losses and there are reports that allegedly, the takeover by the Bank of America and the due diligence was not done properly.

Which car-makers will survive this crisis?

Third quarter car-sales saw a drop of 20% which led Guenter Verheugen the EU’s Industry Commissioner to warn that there are no guarantees that all European car-makers will survive the economic turn-down. The US carmakers are already having major problems and two of the mains ones, Chrysler and General Motors, would have gone to the wall if the US government had not bailed them out with spent billions of dollars.

End of the week saw:
Stock exchanges:
FTSE 100: 4,147
DOW: 8,281
S&P: 850.12
Nikkei: 8,230

Currencies
UK Sterling £ to US Dollar $ 1.48309
UK Sterling £ to Euro € 1.11306
UK Sterling £ to Japanese Yen 134.980
UK Sterling £ to Aus $ 2.19359
US Dollar $ to Euro € 0.750479
US Dollar $ to Japanese Yen 91.0150

Commodities
Nymex Crude oil – $36.51
Gold – $839.90

The US car manufacturers are not the only companies struggling in the present economic crisis with Toyota bracing itself for its first lost in 71 years.

The Yen has been strengthening recently and with the world economic slow-down Toyota finds itself in an unusual position with demand for its cars falling, it is expected to report a loss of 150 billion Yen (£1.13 billion). To compare Toyota reported a profit of 2.27 trillion Yen (£17.13 billion), which puts things into perspective.

Of course the USA is one of Toyota’s key markets, so where the US economy is in crisis sales are being hit hard, as we see President Bush throwing cash of some $17.4 billion (£11.78 billion) at struggling carmakers General Motors and Chrysler in order to stave off bankruptcy as they too see demand at an all time low.

Official figures from the Office for National Statistics reported this week that UK retail sales rose last month with total sales volume rising by 0.3% in November 2008 and are up by 1.5% from the same time last year.

Sales had been predicted to fall in November and in the same week we see shoppers out in force, so it looks like Christmas might not be as bad as predicted for retailers. However, shops have been discounting their prices heavily and staying open late to entice shoppers in. A survey has also shown that UK consumer confidence has improved for two months running with the reduced VAT rate, lower interest rates and lower petrol prices helping.

Low interest rates in the US

This week also saw the US cut interest rates to below 1% this week and now stand at 0.25%. This was a surprise move, as the rate was expected to be dropped to 0.5%. However, the US Federal Reserve is so concerned about the state of the US economy that it felt the step was necessary. We wait to see what the UK’s Bank of England will do next month with UK interest rates.

Major fraud hits banks and investors at a bad time

HSBC has emerged as one of the worst hit by alleged $50 billion (£33.5 billion) fraud by Bernard Madoffs at a time when banks and investors are already struggling to cope with the credit crunch. It amazes me that financial systems and controls can allow this sort on situation to arise in the first place. It just shows that world governments need to review their financial controls with what has happened in the banking sector and their abuse of sub-prime loans and with this recent alleged fraud.

Credit to remain tight until 2010

John Varley, Barclays Bank head, has told the BBC that although credit remains available to households and businesses, the amount is shrinking. He has also said that both consumers and businesses will continue to find it difficult to obtain credit for until up to 2010. During this period the amount of debt in the economy will reduce and will be hard on a number of individuals, but will be a necessary process to go through in order to get back to a healthy economy again.

Help for the US car-makers approved

President Bush has approved a US government loan of $17.4 billion (£11.7 billion) to help US car manufacturers General Motors and Chrysler in order to help them survive. However, Barack Obama has urged these carmakers to reform their ways and become more efficient and to “not squander this chance to reform”. However, it is very likely that these firms will be knocking on the Whitehouse door in early 2009, as this is a loan to see them through and to help them avoid immediate collapse.

End of the week saw:
Stock exchanges:
FTSE 100: 4,287
DOW: 8,579
S&P: 887.88
Nikkei: 8,589

Currencies
UK Sterling £ to US Dollar $ 1.49195
UK Sterling £ to Euro € 1.07165
UK Sterling £ to Aus $ 2.18563
US Dollar $ to Euro € 0.718290

Commodities
Nymex Crude oil – $42.94
Gold – $838.70

This week has seen tourists travelling to Europe getting just under one to one in an exchange between Sterling and the Euro, with the rate falling to under 1.12 and after commission and with the lower rates that tourists get they received less than one Euro for each Pound paid.

With UK interest rates at the lowest they have been for 57 years and worries that the UK economy will be one of the worst hit by the credit crisis and financial slow-down the Pound has taken a serious hit.

Job losses

This has been another week of heavy job losses with the Bank of America announcing job cuts of up to 35,000 this week as part a its efficiency drive after it merged with Merrill Lynch. Another bank Santander, which owns Abbey, Alliance and Leicester and Bradford & Bingley, is to cut its workforce by 1,900 and in the receivers of Woolworths have cut 700 jobs in the distribution side of the company.

The car industry

The US government is considering using money already earmarked to rescue the banking sector, but their plans were rejected this week. The US government is worried that the US economy could not face a major collapse of one of the three major car manufacturers (Ford, General Motors and Chrysler), so that it had to provide cash to keep them going to avoid major job losses and the knock-on effect of such a failure.

With the economy already weak a loss of up to 250,000 jobs and the impact on related businesses would be too much to bear right now! The Unions of the UK car manufacturers are now asking the UK government for similar help for the UK car industry as car sales fall off!

End of the week saw:
Stock exchanges:
FTSE 100: 4,280
DOW: 8,630
S&P: 879.73
Nikkei: 8,236

Currencies
UK Sterling £ to US Dollar $ 1.49470
UK Sterling £ to Euro € 1.11813
UK Sterling £ to Aus $ 2.25213
US Dollar $ to Euro € 0.748113

Commodities
Nymex Crude oil – $46.28
Gold – $820.50

The World Bank has warned that there could be a deep world recession with a predicted slowing in economic growth in 2009.

With job losses being reported almost daily from around the world things are not good at present and the longer-term impact of these redundancies will continue to be felt through-out world economies. The World Bank has also warned that there could be banking failures in emerging market economies and with cash-flow from banks being tested due to banking insolvencies and a reluctance to lend, this will be a testing time for emerging economies.

Chinese exports have dropped and their growth is predicted to slow down, although their imports have dropped by a larger margin giving China a trade surplus of just over $40 billion (£27 billion) for November 2008.

14,000 job cuts at Rio Tinto the Anglo-Australian mining giant which represents 14.4% of their present workforce and is designed to reduce their $10 billion (£6.75 billion) debt mountain. Sony has announced an 8,000 job losses to their workforce in its electronics division in a response to the changing economic climate.

The UK’s manufacturing output fell by 1.4% in October which represents its biggest fall in more than six years and underlines the weak state of the UK economy. This means that UK output has fallen by 4.9% for the year to date and means that manufacturing output has now fallen for eight months in succession.

The opposition leader David Cameron is warning the government that it is putting the UK economy at risk with its extended borrowing, with the Government borrowing a further £20 billion having reduced the VAT rate to 15% from 17.5%, but said that this will be increased in 12 months time along with higher National Insurance hikes and a higher rate tax charge!

Sterling has been under further pressure and today the Pound-Euro rate stands at €1.14507, which belies the problems the UK economy is having and the Pound-Dollar rate is $1.48274.

The Organisation for Economic Co-operation and Development (OECD) has reported that the US economy is facing “The US economy is going through very difficult times“. This is a very detailed report and well worth a read and the report goes on the say that “After a long period of robust growth, the US economy has been struck by a confluence of adverse developments in reaction to past excesses during the upswing, as well as to exogenous shocks”. Barack Obama has some major issues to address when he takes office on 20th January 2009.

This week saw VAT down to 15%, base-rate down to 2% and oil down to $41.74!

These are supposedly good news for the UK economy, as long as the banks pass on the latest interest rate cut and the oil companies pass on the oil price reduction to the pumps. The Prime Minister, Gordon Brown, has been urging banks to pass on this latest cut, but this is not as easy as it seems in all cases. The Government have tightened the lending criteria and regulations the banks have to follow and the LIBOR rate is still higher than this new base-rate, which is the rate at which banks borrow.

The car industry is looking for bail-out cash

The news has been building on the problems faced by the car industry, with the large US manufacturers knocking at the White-house door for bail-out cash and now UK companies are looking to the government for similar help. Barack Obama has vowed not to let the US car industry collapse, so we could see yet more US treasury funds pumped into ailing businesses.

Vauxhall which is the UK’s largest car manufacturer has admitted that its future depends on the US government bailing out its parent company General Motors, so the impact of what is happening in the US economy will have a major impact on the UK economy yet again. It is being questioned whether the US car industry will survive in the long-term, but in the short-term the bail-out will help keep these companies going.

F1 affected by the credit crunch

Also, Honda have pulled out of F1 racing and have put their Formula One team on the market for sale. Should a buyer not be found by then end of the month then the business will be closed down and Honda BAR will not be racing in the 2009 F1 season.

Sterling under pressure

Good news for UK exporters, as the UK pound falls to an all time low against the Euro, ending the week at just under €1.16 to the Pound. The US Dollar rate was also at a low of just over $1.47 to the Pound. This is of course bad news for travellers and for businesses that import in to the UK and at a time when UK businesses are already under pressure due to the credit crunch.

These low rates of exchange also underlie the weakness in the UK economy and of the problems the British face over the Government borrowing to save the banks. The recent drop in base-rates to 2% has also helped to push the pound down lower.

Oil price at a new low

The oil price per barrel has fallen to $41.74 at the end of the week and could fall lower and Merrill Lynch have even predicted a low of $25 per barrel if China falls into recession. What amazes me though is that it has been reported this week that the state-run oil retailers in India have only just dropped petrol prices for the first time in 22 months by five rupees a litre. Which is the same as the UK’s Bank of England sitting like a rabbit in the headlights of a car and not cutting interest rates soon enough. The cuts they are making now are too late in my opinion.

End of the week saw:
Stock exchanges:
FTSE 100: 4,049
DOW: 8,635
S&P: 876
Nikkei: 7,918

Currencies
UK Sterling £ to US Dollar $ 1.47030
UK Sterling £ to Euro € 1.15959
UK Sterling £ to Aus $ 2.26881
US Dollar $ to Euro € 0.788675

Commodities
Nymex Crude oil – $41.74
Gold – $756.60

Great news this week for business owners and property owners with the Bank of England base rate cut by a massive 1.5% to 3%. Eurozone interest rates also saw a cut to 3.25% this week.

It’s funny, I received a local newspaper yesterday which had a house for sale at a price of £495,000. This is a house where I grew up for my early years of my life and my parents sold some 35-36 years ago for £8,700. So looking on the positive side of things, we may be staring a recession in the face and a burst property bubble, however, give the UK economy time and the worlds economies time for that matter and things will always recover, they always do. In those 30 odd years the UK economy has gone through some very tough times and a number of recessions, but that has not stopped that house rising by 5,689%!

Admittedly, what we are seeing right now is the worst financial crisis in a long time, but we will get through it and in 10 years time it will probably be a distant memory and property prices will start to rise again etc. etc.

The first black US president

America voted this week and we now have the very first black president in the USA or we will do when he comes to power on the 20 January next year. I imagine though that this is the first president in a long while that will truly have to hit the ground running with the present economic crisis facing the US and the world.

Whilst Obama is being careful not to step on the toes of Mr Bush, he has already said that he will implement a stimulus package to boost the economy. He has also said this week that he intends to crackdown on tax havens in order to raise around $50 billion (£32 billion) in tax revenues and this includes the likes of the Isle of Man and Jersey.

The president elect will become the president at a time when the US jobless is rising significantly, as the US Labor Department disclosed that US employers cut jobs by 240,000! This has put the jobless rate up to 6.5% and this is expected to rise by a lot more than this next year. This data in the same week that saw US manufacturing hit a 26-year low!

End of the week saw:
Stock exchanges:
FTSE 100: 4,365
DOW: 8,944
S&P: 931
Nikkei: 8,583

Currencies
UK Sterling £ to US Dollar $ 1.58182
UK Sterling £ to Euro € 1.23359
UK Sterling £ to Aus $ 2.30757
US Dollar $ to Euro € 0.779635

Commodities
Crude oil – $61.04
Gold – $734.20

When al-Qaeda attacked the US on the 11th September 2001, known as “Nine-Eleven” did they unwittingly set-off a time bomb in the financial system?

At the time of the disaster the US Federal Reserve dropped interest rates to just 1% in order to prevent their economy from going into a tail-spin. Far from going into a tail-spin the economy, after suffering an initial set-back, continued to grow on the back of easy money and easy lending, at very low rates.

Easy lending has lead to economic melt-down

As a result of this easy lending people spent and spent, pushing up inflation which lead on to several interest rate rises, the intention of which was to slow the economy down. Fuel costs started to rise, with the price of oil rising to a peak of $147 per barrel in July this year, putting yet more pressure on an already fragile economy and pushing up inflation further.

However, despite the early signs of problems and with huge cracks appearing in the US economy, the US Federal Reserve failed to recognise the need to reduce rates at an early stage, as did the rest of the World, leading to the present economic melt down. Governments have been totally blinkered with keeping inflation in-check, without looking at the consequence of previously reducing interest rates to a level that was probably irresponsible. Furthermore, governments have failed to control the irresponsible bank lending policies, where they have been lending to people without income nor jobs, known as NINJA loans (Loans to people with no income, no Job and no assets).

It is important to keep inflation in check however, this blinkered effect has meant that inflation will more than likely disappear, but the problem being that inflation will disappear up the back-side of each major economy. We are now therefore facing, not just a recession, but more than likely a depression, a situation that could have been controlled. I appreciate that with hindsight a problem is easier to judge and make comment on, however, I felt really frustrated some several months ago with the Bank of England sitting there and not reacting or responding to what was unveiling right in front of them. If governments do not learn from this huge mistake we are going to have yet more pain in the future.

World governments need to proceed with caution

World Governments therefore need to be very careful that they do not get caught-out again. We have today seen the UK’s Bank of England reduce rates by an unprecedented amount, which, whilst very welcome and needed, this is not the whole story.

Governments around the world MUST control lending whilst at the same time, not stifling the economy, which is going to be a very tricky balance and difficult road to steer. We do not want to get back to a situation where credit is cheap and in “very easy supply”. If lending is not controlled in a sensible way, credit will continue to build-up and the present financial melt-down will simply be postponed to a future date and be even more painful!

I am not quite sure whether Barack Obama knows what he has got himself into when he chose to become the next US president. Also, the infighting between the UK political parties does not recognise the clear and present danger that the present and the next elected UK government faces. The world needs to work together in dealing with this issue, as they have done so to date, I only hope that the world leaders recognise just how important control over bank lending is and how past “loose control” has lead to a financial catastrophe!

The advice to business owners and to individuals is to be careful and instead of continuing to live on credit, only spend what money you have. Be careful not to fall into the past trap of never ending cheap loans. The false economy of living on debt and re-mortgaging homes is a painful lesson that thousands of people around the globe are beginning to realise.

Fears about a global economic slowdown, heightened by worsening US job figures, have continued to undermine stock markets around the world.

The Dow Jones index was down a further 100 points, 1%, after figures showed the US economy shed 84,000 jobs last month. It had fallen by 3% on Thursday.

Meanwhile London’s FTSE 100 index lost 2.3% – taking its weekly decline to 7% – its biggest since July 2002.

Markets in Paris and Frankfurt fell by 2.5% as economy concerns spread.

Earlier, Japan’s main share index fell nearly 3% while markets in Hong Kong, China, Australia and India all slid 2%.

‘Ugly’ data

The US labour market figures – which showed the unemployment rate rising to 6.1% – were a further jolt to investors who have had to swallow a slew of poor economic data in recent days.

Economists had been expecting 75,000 jobs to be lost while the government also revised upwards.

“This was an ugly number that pretty much confirms that our economy continues to trend downward,” said Jack Ablin, chief investment officer of Harris Private Bank.

“This just knocks the legs out of any hope of seeing much economic improvement right now.”

‘Uncertainty’

“Amid the uncertainty, few investors are willing to buy” Masayuki Otani, Securities Japan

The FTSE 100 closed down 2.3% at 5,240.70 points. The last time it lost so much value in a week was more than six years ago in the wake of financial scandals such as Enron and WorldCom.

Markets in Paris and Frankfurt continued their recent downward trend, both the Cac-40 index and the Dax-30 dropping about 2.5%.

Earlier Japan’s benchmark Nikkei index fell 361.54 points to 12,196.12 amid a widespread sell-off of shares in Asia.

The Hang Seng index fell more than 3% in Hong Kong while markets also fell sharply in China, Australia and India.

“Amid the uncertainty, few investors are willing to buy,” said Masayuki, Otani, chief market analyst at Securities Japan.

“Several bad things happened at once,” he added, explaining the fall.

Gloom

Worries about inflation have prevented central banks in Europe from cutting interest rates to help forestall a slowdown.

But analysts believe this could change soon with economic forecasts across Europe looking increasingly gloomy.

The European Central Bank cut its 2009 growth forecast from 1.5% to 1.2% on Thursday while the UK economy stalled in the second quarter.

In a separate development, the Russian rouble fell against the dollar a day after Russia’s central bank intervened to support the currency amid concerns about a flight of foreign capital after the conflict with Georgia.

The central bank sold up to $4bn in reserves, the Financial Times reported, after the rouble slipped to its lowest level since February 2007.

News reported by The BBC