Week ended 7 March 2009 – Week of more financial turmoil across the World Markets

Posted by admin on 8 March, 2009 under Weekly business news summary | 6 Comments to Read

Another week of turmoil on the financial markets with the FTSE 100 falling by another 7.8% on the week and the US Dow Jones down by 6.2%.

Also, the UK Pound lost ground this week against all currencies falling 1.3% against the US Dollar and 1.5% against the Euro which is largely due to the Bank of England’s decision to drop base rate to 0.5% this week. Not only that the UK is faced with having the need to opt for Quantative Easing too whereby up to £150 billion is to be pumped into the economy to get it going. The strong US Dollar (or weak UK Pound, which ever way you want to look at it) has helped the media group Pearson make increased profits. Profits were up to £585 in 2008 from £468 in 2007 from a company that owns The Financial Times and Penguin Books.

Despite the problems being faced by the UK, London has retained its place as the number one financial centre in the world, followed by New York and Singapore. However, the City of London Corporation has said that there are no “Safe” financial centres in the world.

This week also saw yet another UK high street bank have control be taken by the Government. The Lloyds TSB bank, which took over HBOS in January 2009, is to be owned 65% by the UK Government after putting up further cash to support it’s cash flow and a deal to insure its toxic debt to the tune of £260 billion. Lloyds TSB have agreed to commit to an extra £28 billion of lending over the next two years as part of the deal with the Government.

Things are not looking too rosy in the US with 12.5 million people now out of work which represents 8.1% having risen by a staggering 651,000 last month, making a total of 2 million jobs lost in the last three months! The knock-on effect of these job losses on the US economy will be far reaching and will prolong the economic agony.

Adding to the US wows the car industry has fallen yet further with sales of cars from General Motors falling by 53% and Ford by 48% in February 2009 over the previous February.

House prices continue to fall, despite the lowest interest rates the UK has ever seen in its history. House prices fell by a further 2.3% in February 2009 making the year-on-year fall since February 2008 17.8%. The Government is putting things into place to encourage banks to lend with what it has done with Lloyds TSB and the Bank of England pumping Quantative Easing cash into the banking and insurance institutions. However, although the banks will lend they are being extremely fussy about who they will lend to, so if the borrower has missed a credit card or phone bill payment they will likely be refused a loan.

Some good news for LDV vans with the possibility of a management buy-out being worked on. To help the deal go forward the unions and workers have seen sense by agreeing to work a three-day week and have taken a 10% pay cut together with a cancellation of all bonuses. If all goes to plan the business should see production start again on 6 April 2009 and if things go as management hope they will 850 jobs will be saved. However, if sales of the vehicles do not go well then they will need to speak with the unions again about cutting the workforce.

Oil prices have fluctuated down and then up this week starting out at $44.25 a barrel dropping to $40.15 in the week and closing higher at $45.52 at the end of the week. The 10% fall in the week was on the back of a slew of bad economic data across the world. Insurance giant AIG reported huge losses of $61.7 billion (£43.68 billion) this week and HSBC bank went to the market for £12.5 billion of additional funding, which sent markets tumbling. As a result of these huge losses they will receive a further $30 billion (£21.23 billion) from the US government as a rescue package for the business. AIG has now received the most money of all US companies in bail-out cash with this making it a total of $180 billion (£127.43 billion).

End of the week saw:
Stock exchanges:
FTSE 100: 3,531
DOW: 6,627
S&P: 683.38
Nikkei: 7,173

Currencies
UK Sterling £ to US Dollar $ 1.41254
UK Sterling £ to Euro € 1.11484
UK Sterling £ to Japanese Yen 139.001
UK Sterling £ to Aus $ 2.20393
US Dollar $ to Euro € 0.789297
US Dollar $ to Japanese Yen 98.4037
US Dollar $ to Aus $ 1.56039

Commodities
Nymex Crude oil – $45.52
Gold – $942.70