A Bullish Bear

Posted April 07, 2009

Further stock losses have led to gains in the yen, US dollar, and Swiss franc. The euro weakened on the news the recession in Europe is continuing to deepen.


So is it a bull or bear market?  The answer seems to be it is a bullish bear market.  The stock markets around the world advance and retreat and then advance and retreat again.  So what is going on?

The problem is the recession is still deepening despite all the government funding which has been injected to date.  In the US, the stimulus programs seem to be working as housing sales are starting show signs of life.  But even this good news is dampened by the fact US consumer credit fell $7.48 billion in February.  It is expected the March numbers will show further credit erosion.

The numbers can cause a lot of confusion, but the bottom line is the recession is far from over and economic data shows continued declines.  In Europe, the GDP numbers for the 4th quarter 2008 were revised, and the final numbers show the Euro-Zone GDP fell by 1.6% instead of the original 1.5% reported earlier.  In addition, consumer spending fell by .3%.  This indication the recession continues to deepen has led to a lowering of future growth forecasts.

With the bad news came a weakening in the euro to US$1.3227.  The euro also fell against the yen to 132.23 yen per euro. 

The yen, on the other hand, strengthened against the US dollar.  It rose to 100.54 yen per US dollar.  It also strengthened against the Swedish krona (12.28 yen) and against the Australian dollar (71.59). 

The Canadian dollar weakened slightly to $C1.2381 against the US dollar.  Canada’s currency continues to respond to commodity price fluctuations.   Commodity prices, including for oil barrels, are falling.   Canada has the world’s eighth largest economy which is still in contraction like other global economies.  It is expected numbers will show the country lost another 50,000 jobs in March.

The Swiss franc strengthened against the euro to 1.5188 francs per euro.  It also strengthened against the New Zealand dollar to 1.5124 kiwi per franc.  The Swiss National Bank has begun to buy foreign currencies in order to stop further currency appreciation.

The Sweden krona fell against the US dollar to 6.6613 krona per dollar.  It also weakened against the euro to 8.8372 krona per euro.  Sweden, like other countries, is experiencing falling tax revenues due to reduced consumer spending. 

There is push on many fronts to create a world currency reserve which does not include the US dollar.  The economic crisis has led some to believe the US currency should take a less prominent role in global finances.  But the problem is finding a currency reserve account where there is agreement on its makeup.  The US may have triggered the global recession, but as the base world currency, the rest of the world looks to the US to correct the financial problems which are keeping the fire lit under the declining GDPs.

Mexico, as reported earlier, applied to the International Monetary Fund for a credit line.  It also has a swap line with the US Federal Reserve.  The Mexican peso rose to 13.4847 pesos per US dollar.  Banco de Mexico is buying $100 million of pesos at auction to prevent peso depreciation.

Speaking of swap lines, the US Federal Reserve has established currency swap agreements for euros, Swiss francs, British pounds and yen.  These agreements show the willingness of central banks to cooperate if currency liquidity becomes an issue.