The devaluation of the US dollar compared with the pound is attributed to strong speculations of an impending cut in the Fed Rate by a quarter of a percentage point on Wednesday, in an attempt to limit the impact of a US housing market slowdown. For similar reasons, the Fed had last month gone for half a percentage cut in its main interest rate to 4.75% from 5.25%.

The depreciating dollar had caused investors to exchange dollars for pounds for better return. However, an appreciating currency is not good news for all, especially for the UK exporters exporting goods across Atlantic. Goods exported from UK is becoming more expensive for her overseas customers, eroding the profitability of UK firms. However according to the EEF manufacturers’ organization, a strong world economy, a shift away from price sensitive activities and the fact that costs are spread across the globe cushioned UK manufacturers from its worst effect.

There is also bad news for the UK tourism industry. Appreciating pound means less North American visitors to the country. The number of visitors from North America had already fallen in the first six months of the current year.

There is however good news for those British travelers planning a trip to the US this Christmas. An undervalued US dollar will make their trip cheaper.

Source:BBC

A faltering US dollar, that had touched its all time low compared with Euro last Friday, has favorably affected US exports by reducing its trade deficit but a strong Euro is not good news for European exporters with exports to the countries trading in dollar terms becoming costlier in terms of the depreciating US dollar. While the fear of decline in the value of exports is looming but for the European traders, it is not the appreciating Euro but it is global inflation that they fear might seize the competitiveness of their products.

While an appreciating currency is not good news for the exports of a country but it reduces the cost of production of domestic industries using imported goods as inputs. The lower cost of production would help in recouping any loss in profit from the rise in money-value of the exports. The industries worldwide are reeling under global rise in oil prices. However, oil imports in Europe that are traded in dollar have become cheaper in terms of Euro. Despite an 8% drop in exports from the euro-zone to the USA in the last three months of 2007 compared with the same period in 2006, Europe recorded a healthy growth in industrial output. Rise in exports from Germany has brought the country close to China as the world’s leading exporter. With expansion of the global merchandise market, Europe no longer depends exclusively on the USA for its exports. The sophisticated equipment and machineries produced in the European factories have a huge demand in the Middle East, Russia and other developing countries. The rise in oil prices and the rising economic activities in the emerging economies have kept a steady demand for European exports.

Despite of whatever silver lining the European traders are discerning from a rising Euro but the EU leaders in the recently concluded summit in Brussels have expressed their concern over an excessive volatile and disorderly movement in exchange rate and its ill effect on economic growth. France and Italy are particularly concerned about the continuous appreciation of the Euro.

Source: IHT

In Wednesday’s trade, Nikkei 225 index rose by 2 percent, Hang Seng recorded a 2.7 percent rise and Australia’s main market index rose by 3.6 percent points. The South Korean, Chinese and the Indian market indices showed similar upsurge. Dow Jones industrial average rose by 420 points on Tuesday, its biggest single day gain in more than five years. According to market analyst David Cohen, with uncertainty continuing for the global and US economies the roller coaster ride will continue. Wednesday’s stock performance has lifted the market to the position it held at the beginning of the week before the “Black Monday” that witnessed a strong bearish run. There is also good news for the US dollar. It rose against several major Asian currencies. Despite of a gain of 1.09 percent points by the main 30-share BSE index the trend in the broader Indian market was negative with 1,922 losers outpacing 755 gainers on volume of 309 million shares. With the foreign institutional investors being largely net sellers in the Indian equity market in the current circumstances, analysts hope that the US rate cut will help inflow of foreign funds in the markets of the emerging economies.

However, with expectations of the US markets opening lower on Wednesday as investors prepare to take home the profit they gained from Tuesday’s upbeat performance there is a possible danger of the global markets facing another down trend later this week.

Image

Via:Yahoo

The International Monetary Fund and the Paris-based Organization for Economic Cooperation have scaled down the growth potential of the USA, the Euro zone and Japan. The international organizations have come short of declaring that a recession had almost hit USA. Despite of better economic fundamentals in the European and the emerging Asian economies, the aphorism, ‘when America sneezes, the rest of the world catches a cold’, remains nonetheless true. A credit crunch in the USA will have an adverse affect on the global economy via its strong global linkage effect.

With cheap housing credit having flooded the British economy for over a decade, consumers have suddenly countered unusual stringent lending norms from the mortgage market. First time buyers are finding it difficult to borrow at high interest rates. The Council of Mortgage Lenders has estimated that up to 1.4million Britons would face a sharp rise in mortgage repayments this year when their fixed repayment deals end. Investment advisors are saying that the re-mortgage deals might not be as unattractive as they seem to be in the current circumstances.

If it is possible for the borrower to clear some of the debt ahead of the re-mortgage date it might help. If you are able to pay more than what your mortgage lender requires and even if it is only a small amount each month then financial advisors say then you should do so. Overpaying helps in saving thousands of pounds in interest and cut years off your mortgage term. People who are lucky enough to receive large annual bonuses should consider paying off a certain chunk of their debt every year that would dramatically reduce the length of the time taken to clear the debt.

Avoid being caught in a debt trap while trying to clear your major loan. People often resort to personal loans to consolidate debts. This measure might be successful only if an individual is cautious enough to clear their debts only and not using the excess funds on going on a spending spree.

Try to build a good credit rating as that might help in being charged a lower interest rate. Check your credit records regularly. Insure your income in case you are unable to work and always look for help as earliest as possible.

Apart from the banking, financial services and the property sector the rest of the UK industries appear to be riding out the credit crunch and the impact of tougher borrowing environment has had little impression on the corporate failures. According to a study by the global information service company, Experian, the number of businesses failing in 2007 declined by 8.9% as compared to 2006. In fact, UK has witnessed a 1% growth in consumer spending in the last month with a rapid decline in the unemployment rate.

Source: TimesOnline
Image: NicholsonCartoons

As an immediate response to the Fed rate cut, banks announced lowering their prime lending rate to 6% from the current 6.5%. The cheap lending rate is believed to make credit cheaper and coupled with the stimuli expected to be garnered by increased fiscal spending as was announced by the US congress, the downturn of the economy is expected to be reversed.

The sub-prime lending crisis that is said to be mainly responsible for the current state of the financial sector is attributable mainly to irresponsible lending to borrowers with dubious credit rating. Learning from their past mistakes the mortgage market and other lending institutions will follow a more stringent policy. Cheap credit will definitely help serious investors to take advantage of the current situation. The soon to be effective Congressional plan is also expected to offer tax concessions to investors.

However, inflation continues to plague the economy. High energy and food prices have pushed inflation to 2.7% in the last three months. Stagnating economic growth rate together with inflationary pressure might move the economy to stagflation if immediate results do not emerge from the monetary and fiscal policies. Some economists are of the view that further interest rate cuts are required to prevent the US economy from plunging into recession.

Source:MSNBC
Image:Ou

Although, Nasdaq has extended deadline for its 31% stake sale in the London Stock Exchange, market rumors are asserting that LSE is supporting the Qatari Investment Authority’s bid to end the unwanted ruckus, likely in the coming time.

Earlier Nasdaq made clear that stake would not sell to single buyer but would be parceled out among a number of investors - preferably long-term investors. Single supremacy over the 31% stake can again put LSE on sell out radar. LSE is not confident on the American counterpart, and feeling that if it’s going to single chunk than QIA is a best option and firmly supporting its bid.

On the other side QIA also proved LSE’s decision right by asserting that it’s looking potential buyout as a long term investment rather than a springboard for a bid and interested in exchange’s long term business.

For an easy accessibility in one of the world’s largest stock exchange, few more names are surfacing in the regular interval, such as the Singaporean investment group Temasek, the Australian Stock Exchange and also a number of Italian investment funds are seeking part of the stake in LSE.

Image

During the bull market run the private equity firms acquired businesses using huge amount of debt and investing in lower level of equity, pushing up valuation of debts. However, with the expected slowdown in consumer spending following the recent credit crunch the retail and the housing sector is expected to see their revenue plummeting. Under such circumstances, the senior debt of firms like Crest Nicholson, for instance, that was acquired by HBOS and West Coast Capital for ₤715 million in 2007 is trading for 50p, and its junior debt is trading between 40p to 50p in the pound.

We have seen in the past that indulgence in excessive debt financing in high leveraged buyouts has resulted in corporate bankruptcy. In 1988 Robert Campeau’s buyout of the Federated Department Stores and the 1986 buyout of the Revco drug stores had created similar problems. The craze of the high leveraged buyouts had dwindled since the early 1990s but it had once again attained popularity since 2006 when the global equity markets were witnessing a bull run. The increase in debt frequently pushes the ratings of the acquired companies’ debt lower and they often end in speculative junk status. This badly affects the investors who earlier bought the high-grade bonds to avoid speculative risk.

The dismal high leveraged buyout scenario has acquired a global dimension. In USA itself after pumping $650 billion in the US economy over the past two years, the number of deals is shrinking. Buyout executives are canceling deals already signed and renegotiating other at marked-down prices.

Image

Source:timesonline

Yesterday was a ‘Black Monday’ for investors throughout the globe, with stocks in American, European and the Asian markets witnessing unprecedented downslide amidst fears of the US economy moving towards recession. In London, FTSE crashed by 217.3 points to close at 5,414, its lowest since November 2005. Hang Seng lost 5.18% points to close just above 21,000. The BSE Sensex lost 951 points the second largest fall in equity prices in the history of the Bombay Stock Exchange. Dow Jones was perhaps the only major index to witness a slight 0.2% rise in response to the Fed’s intention of further cutting the interest rate.

Dollar continues to tumble touching 79.12p against the Euro, its lowest since the formation of the European single currency in 1999. The volatility of the value of the dollar is forcing investors to switch their money into ’safe havens’ that is pushing up gold prices to new heights. Gold price touched $1,030 an ounce on Monday. With dollar depreciating, equity prices crumbling and rising crude prices pushing up inflation, the global economy is facing one of its worst crises in the history of globalization.

The US sub prime crisis has pulled down banking indices of the global financial giants, with every US and European bank introducing stringent lending norms to prevent further loss. With strong linkage with the US financial institutions, the European banking institutions have every reason to become jittery after the collapse of Bear Stearns. The rollercoaster ride of the share prices had badly hit the share prices of the High Street Banks with their combined loss amounting to roughly 13 billion pound in a single day. If the British banks, find it difficult to borrow then they would be forced to rein in lending causing upward spiraling of lending rates, further reducing consumer spending. The Bank of England in its endeavor to prevent any impending financial crisis has made an emergency 5 billion pounds available to banks and buildings societies in loans, which must be repaid in three days. The offer was five times oversubscribed as institutions competed with each other for the cheap money.

Despite of assurance from political leaders and the UK Prime Minister in particular that the economic fundamentals are in sound health but the magnanimity of the financial crisis triggered by the highly risky US mortgage market is all set to see a new global recessionary condition.

Source: DailyMail

Daniel Morales, director of the San Gabriel Valley Small Business Development Center, Brandon Shamim, chairman of the Los Angeles Area Chamber of Commerce’s Small Business Council and the American Institute of Certified Public Accountants have the following tips for small companies to survive economic downturns:

• Check your balance sheet and income statements to look for areas from where you could avail extra cash.
• Consider restructuring your credit and sign up for fresh credit to meet your future working capital requirement. You should go for a new loan only if you consider your company to be in sound condition or else loans would compound your problems.
• Manage your inventories by shortening the inventory cycle. Your aim should be to clear the shelves as early as possible. Have a sale to move the obsolete inventory.
• Make sure that your clients clear their payments as a lot of cash would be tied up in unpaid receivables.
• Try to reduce expenses by cutting down on lavish unimportant expenditures.
• Upgrade technology as it might often cut down costs.
• The most important thing perhaps is to maintain a good rapport with customers and try to win their confidence in your products.

The common cost cutting method the small businesses follow is laying-off their employees. However, rather than reducing the workforce, now is the time to add incomprehensible incentive programs to your compensation plan. In fact, this is a nice time to hire the talented employees your rival firms have fired because in order to tackle the recessionary force you should outsmart and outdo your competitors.

Image

via:Los Angeles Times

Fed policymakers last week cut a key interest rate for the second time in two months, but disappointed Wall Street by discouraging expectations that it would follow with further rate-cuts.

Bernanke said he and his colleagues believe economic activity will “slow noticeably in the fourth quarter” compared to the 3.9 percent pace of the third quarter. In his prepared remarks to the JEC, Bernanke said,

Growth was seen as remaining sluggish during the first part of next year, then strengthening as the effects of tighter credit and the housing correction begin to wane.

Many economists believe the economy’s maximum point of danger of falling into a recession will occur in the early part of next year.

A variety of problems from the steepest housing downturn in more than two decades to a severe credit crunch, surging oil prices and a falling dollar have roiled Wall Street in recent days, triggering big plunges in stock prices.

Image

Source