An explanation - at last - of what has been going on this week.
What has happened is that America has proved far more resilient that its
detractors expected and the danger spots have moved to the Eurozone,
Japan and the UK and Australasia.
detractors expected and the danger spots have moved to the Eurozone,
Japan and the UK and Australasia.
The Eurozone will be under particular pressure as the ‘soft’ economies (Spain, Italy, Greece,
Portugal and Ireland and some say France) face different and more
severe problems than the northern swathe and especially Germany
which has fallen off its pedestal of apparent immunity.
The problems may just be about to get nastier.
xxxxxxxxxxxxxxxxx cs
=============
TELEGRAPH Business News 9.8.08
US dollar rallies as extent of worldwide recession becomes clearer
By Ambrose Evans-Pritchard, International Business Editor
The psychology of global markets has shifted hugely over recent days
as it becomes clear that Europe, Australasia and parts of Asia are
sliding into recession.
The US dollar has launched its best rally in half a decade,
reflecting a recognition that half the world is in even worse shape
than the US. In fact, America is the only G7 country to eke out
modest growth this summer.
The US dollar index - currencies watched closely by traders - smashed
through resistance yesterday in the biggest one-day move since the
long dollar slide began seven years ago.
"This was highly significant. Perceptions have changed," said Ian
Stannard, currency strategist at BNP Paribas.
The greenback gained three cents to $1.5050 against the euro, with
big moves against other currencies.
Commodities tumbled as hedge funds and financial investors struggled
to untangle themselves from crowded positions on the futures markets.
Brent crude fell $4 to under $114 a barrel, down over 20pc since
peaking in early July. The Baltic Dry Index has now fallen every day
for over three weeks, dropping 30pc on fears that ship demand is
fizzling out.
Copper fell to a six-month low on reports of rising inventories in
China and Europe. Lead, nickel and tin all dived in frantic trading
on the London Metal Exchange.
"We see a deep global recession," said Albert Edwards, chief
strategist at Société Générale.
"Growth prospects in the Eurozone, Japan and the UK have
deteriorated. Most now accept that recession has already begun in all
three," he said. Mr Edwards predicted a "collapse" in emerging
markets next. "You ain't seen nothing yet," he said.
The commodity slide boosts the dollar as petro-payments are recycled
into euros, not the greenback.
A Bundesbank study found that for every $1 sent to the Middle East or
Russia for oil, the eurozone gets 40 cents back. Europe is the chief
supplier of cars and industrial good to the petro-economies. The US
receives just 10 cents.
This bias is now going into reverse. Moreover, Danske Bank says there
has been a $70bn net outflow of investment from the eurozone over the
last year. It appears that foreign governments are sated on European
bonds.
The drip-drip of bad news in America is now being trumped daily by
the icy douche splashing over Europe. The markets were stunned by
leaks from Berlin last week that Germany's economy had shrunk by 1pc
in the second quarter. Yesterday Italy revealed a 0.3pc contraction.
The last straw was an admission this week by European Central Bank
president Jean-Claude Trichet that "downside risks had materialised"
and there was no clear end in sight.
The comments were followed by the ECB's lending survey yesterday,
confirming that banks have cut back sharply on mortgages and
household credit.
BNP Paribas said it was now clear that the ECB had misjudged the
severity of downturn. The monetary squeeze of the last year has
raised mortgage costs by 150 basis points in Spain, Italy, Ireland
and other states that rely heavily on floating-rate contracts. House
prices are dropping in several regions at rates that match the US slide.
Bernard Connolly, global strategist at AIG, said the falling euro
would come too late to prevent a severe economic crunch across
southern Europe. "We think the EMU credit bubble is about to burst,"
he said.
Current account deficits have already reached 10pc of GDP in Spain
and Portugal, and 14pc in Greece. The region depends on foreign
capital flows to keep its economies afloat. This is now under threat
as investors become alert to the solvency risks of debt deflation,
causing a blizzard of warnings from rating agencies on the health of
the banks in these countries.
Over the last few months the US dollar appears to have hit the bottom
of its cycle, suggesting its relentless slide since 2001 may finally
be over.
Arguably, the US is now super-competitive. Airbus and Volkswagen are
shifting production plant across the Atlantic. US furniture and
textile companies have stopped outsourcing to China, and are coming
home.
The International Monetary Fund says the dollar has fallen 25pc to
30pc on a global basis, just as it did in the late 1980s. There was
no shortage of dollar doomsters at that time, warning that America
was finished - left behind by Japan and Germany. Events played out
otherwise. America was on the cusp of a recovery.
Will this be repeated? The US current account deficit has fallen from
7pc of GDP to under 5pc early this year, or nearer 4pc after
adjusting for the oil spike.
As the Habsburgs used to say, "the situation is desperate, but not
serious".
Portugal and Ireland and some say France) face different and more
severe problems than the northern swathe and especially Germany
which has fallen off its pedestal of apparent immunity.
The problems may just be about to get nastier.
xxxxxxxxxxxxxxxxx cs
=============
TELEGRAPH Business News 9.8.08
US dollar rallies as extent of worldwide recession becomes clearer
By Ambrose Evans-Pritchard, International Business Editor
The psychology of global markets has shifted hugely over recent days
as it becomes clear that Europe, Australasia and parts of Asia are
sliding into recession.
The US dollar has launched its best rally in half a decade,
reflecting a recognition that half the world is in even worse shape
than the US. In fact, America is the only G7 country to eke out
modest growth this summer.
The US dollar index - currencies watched closely by traders - smashed
through resistance yesterday in the biggest one-day move since the
long dollar slide began seven years ago.
"This was highly significant. Perceptions have changed," said Ian
Stannard, currency strategist at BNP Paribas.
The greenback gained three cents to $1.5050 against the euro, with
big moves against other currencies.
Commodities tumbled as hedge funds and financial investors struggled
to untangle themselves from crowded positions on the futures markets.
Brent crude fell $4 to under $114 a barrel, down over 20pc since
peaking in early July. The Baltic Dry Index has now fallen every day
for over three weeks, dropping 30pc on fears that ship demand is
fizzling out.
Copper fell to a six-month low on reports of rising inventories in
China and Europe. Lead, nickel and tin all dived in frantic trading
on the London Metal Exchange.
"We see a deep global recession," said Albert Edwards, chief
strategist at Société Générale.
"Growth prospects in the Eurozone, Japan and the UK have
deteriorated. Most now accept that recession has already begun in all
three," he said. Mr Edwards predicted a "collapse" in emerging
markets next. "You ain't seen nothing yet," he said.
The commodity slide boosts the dollar as petro-payments are recycled
into euros, not the greenback.
A Bundesbank study found that for every $1 sent to the Middle East or
Russia for oil, the eurozone gets 40 cents back. Europe is the chief
supplier of cars and industrial good to the petro-economies. The US
receives just 10 cents.
This bias is now going into reverse. Moreover, Danske Bank says there
has been a $70bn net outflow of investment from the eurozone over the
last year. It appears that foreign governments are sated on European
bonds.
The drip-drip of bad news in America is now being trumped daily by
the icy douche splashing over Europe. The markets were stunned by
leaks from Berlin last week that Germany's economy had shrunk by 1pc
in the second quarter. Yesterday Italy revealed a 0.3pc contraction.
The last straw was an admission this week by European Central Bank
president Jean-Claude Trichet that "downside risks had materialised"
and there was no clear end in sight.
The comments were followed by the ECB's lending survey yesterday,
confirming that banks have cut back sharply on mortgages and
household credit.
BNP Paribas said it was now clear that the ECB had misjudged the
severity of downturn. The monetary squeeze of the last year has
raised mortgage costs by 150 basis points in Spain, Italy, Ireland
and other states that rely heavily on floating-rate contracts. House
prices are dropping in several regions at rates that match the US slide.
Bernard Connolly, global strategist at AIG, said the falling euro
would come too late to prevent a severe economic crunch across
southern Europe. "We think the EMU credit bubble is about to burst,"
he said.
Current account deficits have already reached 10pc of GDP in Spain
and Portugal, and 14pc in Greece. The region depends on foreign
capital flows to keep its economies afloat. This is now under threat
as investors become alert to the solvency risks of debt deflation,
causing a blizzard of warnings from rating agencies on the health of
the banks in these countries.
Over the last few months the US dollar appears to have hit the bottom
of its cycle, suggesting its relentless slide since 2001 may finally
be over.
Arguably, the US is now super-competitive. Airbus and Volkswagen are
shifting production plant across the Atlantic. US furniture and
textile companies have stopped outsourcing to China, and are coming
home.
The International Monetary Fund says the dollar has fallen 25pc to
30pc on a global basis, just as it did in the late 1980s. There was
no shortage of dollar doomsters at that time, warning that America
was finished - left behind by Japan and Germany. Events played out
otherwise. America was on the cusp of a recovery.
Will this be repeated? The US current account deficit has fallen from
7pc of GDP to under 5pc early this year, or nearer 4pc after
adjusting for the oil spike.
As the Habsburgs used to say, "the situation is desperate, but not
serious".
ECONOMIC HEADLINES 9.8.08
-Times
Dollar surges as markets back US
The rally in the dollar in Friday's frenetic trading triggered the
steepest one-day losses for the euro for four years
BP production hit after attacks in the Caucasus
The group is forced to slash oil production from its fields in
Azerbaijan [nb NOT Georgia related] because of an attack on a
pipeline in Turkey
Managers walk fine line on dismissals
The banking sector is going through its worst slump in 30 years, yet
the losses are having little impact on employment
Foundations of bricks and mortar shift
A residential property slump that is likely to prove about as severe
as the crash in the early Nineties has taken hold
-Financial Times
Regional house prices suffer falls
London property values buck national trend
-Telegraph
Mortgage lenders lose patience as repossessions jump
Mortgage lenders are more impatient with borrowers struggling to pay
their interest bills than ever before, it has emerged.
-Times
Dollar surges as markets back US
The rally in the dollar in Friday's frenetic trading triggered the
steepest one-day losses for the euro for four years
BP production hit after attacks in the Caucasus
The group is forced to slash oil production from its fields in
Azerbaijan [nb NOT Georgia related] because of an attack on a
pipeline in Turkey
Managers walk fine line on dismissals
The banking sector is going through its worst slump in 30 years, yet
the losses are having little impact on employment
Foundations of bricks and mortar shift
A residential property slump that is likely to prove about as severe
as the crash in the early Nineties has taken hold
-Financial Times
Regional house prices suffer falls
London property values buck national trend
-Telegraph
Mortgage lenders lose patience as repossessions jump
Mortgage lenders are more impatient with borrowers struggling to pay
their interest bills than ever before, it has emerged.
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