Archive for the ‘USA’ category

Tug Of War For Currencies

October 29, 2010

With many countries attempting competitive devaluation at the moment, the tug of war between currencies is being played out on a global scale on the eternal premise that if one currency goes up in value, another must come down; as is the nature of ‘valuation’ in the global markets.

Because of this nature, by definition, no two currencies can move in the same direction. One’s gain is another’s loss.

These changes are being fortified and artificially exaggerated by countries such as China and Japan interfering with their own currencies in order to counter-act inflation in the market. They do this by effectively buying and then selling their own currencies to generate currency movements that would otherwise have been different.

Such interference has generated an enormous amount of tension between countries (those who condone the practice, and those that do not) and the situation has been ominously labelled the ‘new currency wars.’

Two countries in the limelight at the moment are the US and China who have been publicly opposing each other at a host of financial conferences and crisis talks. The US is voicing concerns over China’s interference in it’s Yuan (otherwise known as the Renminbi) which it terms as currency manipulation.

In response to this, China has branded the US as using them as a scapegoat for their own economic problems which include a sluggish economy fuelled by high unemployment.

As more and more countries jump on the intervening band-wagon, we are seeing countries such as Brazil, Japan and Korea becoming involved in the global tug of war, as temperatures continue to rise.

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Threat Of Currency War Casts Shadow Over Global Relations

October 15, 2010

Today, Pascal Lamy who is in charge of overseeing global trade, announced that the ever-growing friction between countries could well result in 1930’s style protectionism.

The tensions are being caused by a difference of opinion surrounding currency handling within countries; whilst a minority of countries are intervening in their own currencies in order to manipulate their own economy, others such as the U.S. agree that this action creates an artificial environment and disrupts global balance.

This saw states restraining trade between each other in order to prevent foreign take-over of domestic markets and companies. Sanctions on imported goods were generally made.

In what Lamy sees as a slippery slope situation, he is concerned that it will develop into a country closing themselves off to another country by raising barriers to imports.

In what has been a monumental effort of restraint from the U.S., the American government have managed to refrain from branding China as manipulators. If this was to happen, the situation might change at a fast rate, with the threat of protectionism being more imminent.

Safe Havens Back Down

August 26, 2010

The yen, the US dollar and the Swiss franc all fell in this morning’s early trade – can you see the pattern?

Yes, all three are traditionally seen as ‘safe havens’ in an otherwise rocky market – yet today investors headed away from them on the back of healthier commodity increases.

Meanwhile the Japanese authorities are still rumoured to be thinking about intervening on the yen’s strength.

Also in the news: central banks are meeting at the US Fed’s mountain retreat to talk about the state of the global economy.  Is it recovering well enough?  Are we on the edge of another cliff, about to tumble back into recession?  Do we need to print more money to give things a boost?  These and other key topics are likely to be discussed.

Global Shares Fall

June 29, 2010

Tuesday and shares have fallen around the world on the back of investor nerves.

Heading back to safer assets, investors are nervous on bank repayments to the European Central Bank later this week.  With large repayments due, a healthy portion of financial liquidity will be removed.  The euro fell as many headed back to the US dollar in this morning’s early trade in London.

Meanwhile BP shares have taken a further knock after the company announced its cleanup operation might be affected by tropical storm Alex, which might head for those areas hit by the oil spill.

Oil Down….Again..

July 8, 2009

Oil prices have hit six-week lows and a barrel is now worth $62.30, down 63 cents.  Now, the question is: is there a general increase in caution in the trading community?  Is everyone worried about what is happening in the global recovery that we were all beginning to see?

Things are getting confusing again.  Ok, so let’s do a quick round-up:

  • Oil prices have risen steadily and (fairly) quickly since the start of 2009
  • The general mood of late has been of ‘bottoming out’ of the recession – things can only get better
  • Overall good news from industry sectors as demand and production increased
  • ‘Green shoots’ becomes the word du jour again
  • V-shaped is the shape of the recession, say analysts
  • Business sentiment is up in the UK and Europe

Things were definitely looking up, weren’t they?  But, now the USA as the world’s most powerful economy, has put a couple of spanners into the works – 1. the latest unemployment figures were worse than expected and 2. fresh fiscal stimulus is being speculated over

Over in the UK, the BoE is planning new asset purchasing and Alistair Darling is going to announce the new FSA guidelines for the financial sector – set to be much stricter.

So is there an overall “down” mood or is the recession more W than V?  Some are saying that the dip in oil price is merely a correction on the too-early recent rally.

Stick with risk or head to the havens?  That is the most important question for investors right now!  Commodity traders are reminding us that while oil is down, precious metals are remaining consistent!

UK and the Inflation VS Deflation Debate

February 18, 2009

Yesterday, official consumer price inflation figures and the retail prices index were released. They show that so far, the UK is not yet experiencing deflation. But are we headed that way, and what is worse for the UK – inflation or deflation? Most people know that deflation would be much harder to get rid of – just look at Japan’s two-decade battle.

The fight against the two beasts is being tackled differently around the world. In America, they are still living in fear of a reprise of the Great Depression, and seem willing to throw as much in the way of fiscal stimulus at the problem as is physically possible. In Europe, the fear of hyper inflation as experienced by Germany in the pre-World War II years is feared more. Back then, inflation led to the fascist’s increase and eventual takeover. The European Central Bank is being much more cautious, and seems keen to warn of future problems if there is too much cash injection.

It’s not news that the UK has a very high level of debt – credit cards, mortgages, loans (secured, unsecured, even payday loans) are all sitting in a huge landfill of waste. Were we to enter deflation, bankruptcy would take speed in an effort to clear debt. Soon the snowball would take speed: unemployment would increase ever more as companies cut more jobs in light of declining demand. Then, with falling prices, households would hold off on spending in hope of cheaper prices to come. Nobody buying, no demand…and so the cycle would continue.

But which is the lesser of the two evils? While some say that a small amount of deflation (in asset prices) can actually be useful in order to rebase the prices to suit the supply and demand of money in the aftermath of a boom period – such as the UK is currently experiencing. Inflation means that wealth and income is redistributed in favour of the rich and the poor are those that suffer and this can lead to a massive dent in public morale as speculation increases (think pre-war Germany). Deflation affects the whole of society. Unemployment hits a much larger cross-section and income decreases for the whole community. Depression can lead from deflation, and no amount of monetary policies can control this state.

As yet, the UK has not entered a state as drastic as those mentioned above, and there is even a slight glimmer of hope on the horizon as the housing market has noticed a slight improvement in recent weeks. But it’s wise, perhaps, to consider the future and ponder upon which method is best in order to deal with the situation. Not that we would be able to have much say in the matter…

Future of the World Economy

January 29, 2009

If you’re 25 now, take note: by the time you’re heading to the age of 50 and possible retirement, things are going to start getting better in the world economy.  Yes that’s right – start getting better.

The International Monetary Fund have released their new prediction for what is in store for the world, and it doesn’t make for light reading.  The worst hit will of course be Britain – who else?  In the UK, growth will be down by 2.8% which is the worst rate of all developed nations.

This data means that world growth is the worst it has been since World War II.  And things aren’t set to improve until around 2030.  The IMF didn’t have much good to say except that there will be a slight increase in growth in 2010 – to around 3%.

The best foreign exchange rates are likely to be something that require a bit of patience to find….

One person who is hoping to make a significant difference is President Barack Obama who today had his financial stimulus plan passed at last.  The Republicans weren’t happy with it, saying it was far too expensive at $819bn but it will take a little bit of time to see what level of difference the plan will make.