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January 08, 2009

Across the Spectrum - 5th January 2009

President-elect Barack Obama's economic stimulus package is to contain as much as USD 300 billion worth of tax cuts out of the total package of USD 775 billion, according to Democratic aides. Making such a high level of tax cuts within the package is likely to win approval from congressional Republicans. Senate Minority Leader Mitch McConnell said his party would support an immediate middle-class tax cut as part of any stimulus package. The plan would attempt to boost consumer demand by spending USD 140 billion on tax relief for individuals. By using the mechanism of tax relief rather than end of tax year rebates would get money to people immediately. Similar measures would be implemented for businesses. The remainder of the stimulus package would be used for spending on roads, bridges and other infrastructures to create or save 3 million jobs. Meanwhile the outgoing Bush administration has thrown a lifeline to the US's troubled car manufacturing industry, granting loans worth USD 13.4 billion to keep General Motors and Chrysler from bankruptcy for now.

Chinese economic growth, boosted by the government's 4 trillion yuan (USD 586 billion) stimulus package, will likely exceed 8% this year according to Citigroup's chief Asia Pacific economist, Huang Yiping. "Latest official statements confirm that 8% growth is now a political as well as economic policy priority." China needs growth of at least 8% to create enough jobs for the 20 million workers entering the urban workforce annually and ensure social stability. Strong growth in China compared with other economies worldwide will lead to gains in the yuan. The Chinese currency will appreciate more than 4% this year to 6.55 yuan per dollar, Huang said.

The Reserve Bank of India cut is benchmark overnight lending rate on 2 January to 5.5% from 6.5% and the government announced a second stimulus package to encourage economic growth and encourage overseas investors to boost holdings of local assets. The Indian finance ministry predicts the economy will expand as little as 7% in the year ending 31 March, the slowest pace since 2003.

The yen has fallen in the last three days against the euro on speculation that US fiscal stimulus and gains in global stocks will give investors confidence to buy higher yielding assets. The yen traded at 128.09 per euro in London earlier today down from 127.76 in New York late last Friday. It was at 92.00 versus the dollar from 92.42 on 2 January. The euro bought USD 1.3922 from USD 1.3921 and declined to 1.4969 Swiss francs from 1.5030. The pound fell to USD 1.4539 from USD 1.4548.

The dollar, yen and Swiss franc may weaken this year against 2008's biggest losers in the currency markets as the global economy starts to recover, the largest foreign-exchange strategists and investors say. The winners will be the Brazilian real, Indonesian rupiah and Polish zloty as investors return to higher-yielding assets, according to a Bloomberg news survey. The dollar may strengthen versus the euro and Japanese yen, while dropping against the pound. The Dollar Index that tracks the currency against six of the US's biggest trading partners fell 6% last month, the most since July 1985, after rising 18% from June to the end of November.

The steepest decline in crude prices on record may be setting up oil investors for a rally this year, if history is any guide. The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 30% to USD 60.29 a barrel by December. The curve looks almost the same as 10 years ago, after Russia's default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand.

Fund managers have been making their predictions for 2009 with most in agreement that markets will rise during 2009. Predictions vary between fund managers but the most convincing fund managers are those who are realistic. Tim Steer, manager of New Star UK Alpha Fund, explains that some of the fall in share prices in 2008 was due to technical factors. "2008 was notable for a collapse in the link between company earnings and share price performance. Ordinarily, companies with good prospects that deliver solid earnings can expect their share price to rise. But in the latter half of 2008 many companies met or exceeded expectations but their share prices fell." He points out that de-leveraging has forced hedge fund managers, faced with redemptions, to sell their good stocks. "Normal investment analysis has therefore been thrown out of the window." But Steer believes the volatility will eventually end and "those investors who stick to their guns and continue to invest in companies with solid fundamentals will be proven right in the medium term, even if short-term de-leveraging creates erratic price movements."

Spotlight on Europe

Chancellor Angela Merkel's Social Democratic coalition partner has proposed a 40 billion euro (USD 56 billion) economic stimulus programme, as the ruling parties have narrowed their differences over steps to combat the recession. The SPD plans include infrastructure investment and tax relief for families, while rejecting calls by the Christian Social Union, Merkel's Bavarian allies, for direct income tax cuts.

Bank of England Governor Mervyn King may abandon his reticence to shore up the financial system as the UK economy moves further into recession. With the central bank set to cut the UK's key interest rate to the lowest in history this week, King may soon be forced to follow the US Federal Reserve and pursue other ways to inject money into the contracting UK economy. King's first course of action will probably be to expand the GBP 200 billion programme that allows banks to swap illiquid securities for government debt, economists say.

European investor confidence increased for the first time in seven months in January, rebounding from a record low on interest rate cuts and government measures to stimulate the economy. An index measuring euro-region sentiment rose to minus 34.4 from minus 42.3 in December, the steepest increase since August 2005, when the announcement of early German elections boosted morale, Germany-based Sentix research institute said today. "People realise that the measures put under way by ventral banks and governments will show some effect," Patrick Hussy, an economist at Sentix said. "The dynamic of the increase is promising and mustn't be underestimated. It came as a surprise but suggests the light at the end of the tunnel has appeared."

Slovakia has become the 16th member of Europe's monetary union and the first state from central Europe to make the switch to the euro. "The Slovak economy was able to fulfil all the conditions required to join the euro less than five years after the country entered the EU and this had required the political will and a very dynamic economy. Now its time to reap the benefits of sharing the same currency with 325 million Europeans in the 15-strong eurozone", said EU economy and monetary affairs commissioner Joaquin Almunia.The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation there to and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

 

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

 

This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.

 


If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website
www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France."

 


TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 -
www.orias.fr

 

 

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Across the Spectrum - 29th December 2008

Homeowners in the UK are no longer using equity in their properties to finance spending on major purchases. Quarterly Bank of England figures on housing equity withdrawal showed that in the third quarter of 2008 homeowners effectively paid back GBP 5.7 billion of their mortgages. It follows a similar figure of GBP 2 billion for the second quarter of 2008 but contrasts sharply with the third quarter of 2007 when homeowners effectively borrowed an extra GBP 11.1 billion. The data shows that homeowners are concentrating on repaying their mortgage, rather than adding to their debts.

The pound may rebound from its worst year on record against the euro as investors start betting on a recovery in the UK economy. The UK currency will strengthen 14% against the euro in 2009, after depreciating 24% in 2008, based on a median forecast of 42 analysts and strategists surveyed by Bloomberg. "We will see some signs of life in the UK economy sooner than we do in the eurozone," said Henrik Gullberg, a strategist with Deutsche Bank in London. "Even though we might be far away from a rate hike in the UK, the focus for currency traders will shift to that sooner in the UK than in the eurozone." The pound ended last week at 96.10 pence per euro and USD 1.4580.

The Bank of England will have to follow the US Federal Reserve and Bank of Japan by cutting borrowing costs close to zero before the pound starts to recover, according to Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London. The yield on short sterling futures contracts expiring in March declined 65 basis points to 1.74% since the most recent interest rate cut by the Bank of England on 4 December indicating increased bets on further reductions. "The quicker the Bank of England bites the bullet and cuts to zero the quicker the pound can start to recover," Jones said. "They are just prolonging the inevitable." He further added that he thinks sterling may trade at parity with the euro in the coming weeks.

The spread of London interbank offered rates (Libor) for three-month dollar funds over anticipated policy rates fell to its lowest since the immediate post-Lehman period and three-month euro and sterling Libor rates were once again fixed lower, having fallen every session since early October. Analysts said the flood of central bank liquidity and myriad government banking guarantees throughout the fourth quarter have ensured there's sufficient cash available in the system to bring down lending rates, even though some banks are finding alternative methods of funding from traditional interbank markets, such as using the repo markets more efficiently.

Crude oil rose for a second day in New York following concerns that supplies of Middle Eastern oil may be disrupted and news that China intends to build its emergency stockpiles of oil while prices are low. Crude oil for February delivery rose as much as 5.6% to USD 39.82 a barrel on the New York Mercantile Exchange.

Instability in the Middle East has driven up demand for gold as a haven and hedge against inflation. Gold for immediate delivery increased to USD 882.44 an ounce in London. Gold may climb to USD 935 an ounce by the end of next week according to James Moore, an analyst at The BullionDesk.com in London.

Spotlight on Asia

Japan's stock market, down by more than half from 2007, is likely to experience a "dawn" in 2009 as the Japanese government supports small businesses and the US tackles the financial crisis, Credit Suisse Group wrote in a report. "We forecast 2009 will represent a dawn for the Tokyo market, a period before the return of the sunshine," Credit Suisse's Shinichi Ichikawa, chief Japan equity strategist in Tokyo, wrote in the brokerage's annual outlook report published last week. President-elect Barack Obama's "inauguration will have an immediate positive impact on Japanese stocks as he leads the US out of the financial crisis." The benchmark Topix index could rise as much as 42% to 1,200 by the end of the year, he said. The brokerage recommended staying "overweight" in defensive and domestic shares as the yen is likely to continue strengthening against the dollar and euro, depressing earnings for Japanese exporters.

Japan's Mitsui Sumitomo Insurance, Aioi Insurance and Nissay Dowa General Insurance are in talks to merge in a move that would create the country's largest non-life insurer. "Investors liked the merger news as it sparked hopes of greater profitability and less competition in the sector," said Yoshinori Nagano, a chief strategist at Daiwa Asset Management.

Singapore's expenditure on research and development grew by 26.5% in 2007 and equates to 2.61% of GDP. Private sector spending was USD 2.9 billion with the majority being accounted for by R&D connected to manufacturing. Yena Lim, managing director of A*STAR, said, "2007 has been exceptional...Singapore is fast building a strong base of R&D activities in the country. The Government's steadfast support of R&D activities has spurred the rapid development of this sector, and encouraged investors to make significant R&D investments here. Knowledge-based and innovation driven activities will allow our economy to be more resilient and create high value jobs for Singaporeans."

China has announced a pilot scheme to allow trades in the yuan. It is part of a package of measures designed to help exporters. Most of Chinese foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations. The yuan is not yet a freely convertible currency but is already being used in some South East Asian countries, such as Vietnam. The scheme, when it is launched, will allow the yuan to settle trade between parts of eastern China and Hong Kong/Macau and between south-west China and the Asean group of countries.

The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation there to and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

 

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

 

This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.

 


If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website
www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France."

 


TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 -
www.orias.fr

 

 

 

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Across the Spectrum - 22nd December 2008

Barack Obama has expanded the goals of his proposed economic stimulus, with a plan to create or save an additional 500,000 jobs. The president-elect raised his job's target over the next two years to 3 million, up from the 2.5 million goal set last month, as US unemployment reached its highest level for 15 years. Transition officials said Mr Obama had agreed the outlines of a USD 675 billion to USD 775 billion two-year recovery plan last week. But the cost is likely to rise above USD 800 billion as Congress makes its own demands during the legislative process.

The Irish government is to put 5.5 billion euro into Ireland's three largest banks, taking control of Anglo Irish Bank Corp. The government will inject 1.5 billion euro into Anglo Irish in return for preference shares with 75 percent of its voting rights. Ireland, which was the first country in Europe to guarantee all bank deposits, is being forced to use public money after initially urging the banks to seek private investors to assist in the country's bank bailout.

The pound weakened against the euro, moving closer to parity for the first time, as traders increased bets the Bank of England will lower interest rates to stimulate the UK economy. It depreciated to 94.71 pence per euro in London and also dropped against the dollar to USD 1.4870, from USD 1.4920. The yen has weakened against the dollar and euro as Japanese exports have decreased and the US government aid to General Motors and Chrysler reduced demand for the currency as a haven. The yen dropped to 126.30 per euro in London and to 89.76 against the dollar.

Crude oil traded above USD 42 a barrel after OPEC restated its commitment to enact production cuts announced last week. OPEC is "determined" to stabilise oil markets, the Saudi Oil Minister said yesterday. Oil is poised for the first annual decline in seven years, falling 55% in New York so far in 2008. Crude oil for February delivery traded at USD 42.44 in electronic trading on the New York Exchange earlier today.

Most analysts think it's unlikely that European stock markets will rally before the second half of 2009. However, they think there may be some good values even in cyclical businesses such as manufacturing. Bleak earnings outlooks have already been factored into many share prices. And, says Philip Isherwood, chief European equities strategist for investment bank Dresdner Kleinwort in London, managers at some companies "are becoming more realistic," trimming their forecasts and moving aggressively to reduce costs.

He adds that such companies are likely to outperform rivals even in a poor economy, and they'll be well-positioned for the next upturn. Isherwood gives one example: steelmaker Arcelor-Mittal, which faces a collapse in demand from carmakers and other big customers. It has announced tough cost-saving measures, including a plan to save USD 1 billion by cutting some 9,000 jobs. With its price-to-earnings ratio of just 2 based on 2009 predictions, its now being viewed as a "buy" by analysts.

Companies that dominate their sectors also can make good bets, as they emerge from the downturn with a tighter grip on their markets. "In tough times, the people who are stronger and able to invest are better off than weaker competitors," says Nokia CEO Olli-Pekka Kallasvuo. Nokia, which holds 38% of the global cell phone market, has twice revised its 2008 sales forecast downward, but it has a healthy balance sheet and generated more than USD 1.6 billion in cash flow during the third quarter. With its shares off by two-thirds in this year's market turmoil, it looks like a good buy, say analysts.

Currency movements could produce some winners too. Shares of luxury-goods giant LVMH Moet Hennessy Louis Vuitton have fallen some 30% since September as demand has weakened in key markets. Although LVMH's sales growth in 2009 will be only 3%, HSBC predicts earnings will jump 6% because LVMH books about half its sales in dollars and yen, which have risen sharply against the euro.

Spotlight on Latin America

Wal-Mart Stores Inc's planned purchase of Chile's Distribucion y Servicio D&S SA will be the discount retailer's biggest acquisition in Latin America. Wal-Mart's tender offer values Chile's largest grocer at about USD 2.66 billion. The purchase signals Wal-Mart's relative health at a time when other US retailers are struggling.

Brazil's benchmark rate, Selic, will end 2009 at 12.25% according to a central bank survey of about 100 economists. Inflation is forecast at 5.02% next year by the same survey. The central bank targets inflation of 4.5%, plus or minus 2 percentage points.

Mexican inflation may have stayed near a seven-year high in the first half of December, helping to delay any move by central bank policy makers to cut interest rates. Consumer prices in Latin America's second-largest economy rose 0.27% in the first 15 days of December, according to the median estimate of 12 economists by Bloomberg. Mexico's inflation rate will probably end the year above the central bank's forecast of 6%.

Peru is advancing with plans to sell its first foreign bonds in almost two years to demonstrate its economy's strength after receiving investment-grade ratings. Peru will follow Mexico, which yesterday became the first developing nation to tap international debt markets since September. The Peruvian government states it has no pressing need for the cash and doesn't need funds to help finance a USD 3 billion economic stimulus plan announced last week.

The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation there to and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

 

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

 

This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.

 


If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website
www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France."

 

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