A Little Guidance, Please

Posted February 03, 2009

As global governments introduce new stimulus plans, the US dollar and Japanese yen strengthened. The UK pound feels downward pressure as the financial sector continues to struggle.


The new term for the day is “guidance” except in the case of the markets it is “no guidance”.  Guidance is something companies give investors in the form of projected earnings and dividends.  The information is supposed to help investors understand how management sees the future of their company.  Some major companies doing global business, such as Microsoft and Starbucks, are refusing to give guidance to investors right now. 

Lack of guidance in itself is not earth shattering, but it is another indicator of lack of confidence that reaches to the highest levels.  Global governments are still struggling to determine what they can do to stop the continued deepening of the recession and stimulate long term recovery.   From the UK to the US to Japan to Australia, new government stimulus plans are in the works and impacting currency markets.

In the US a new stimulus plan is being debated in Congress even as officials work on plans to spend the second half of the original TARP funds equaling $350 billion.  Under the new administration of President Obama the spending is supposed to assist taxpayers more and not just hand over money to banks without conditions.  The world is waiting to see if any new ideas come out of the plan and hoping whatever the US does will work to increase global import orders again.

The Bank of Japan has announced plans to buy 1 trillion yen of financial company shares.  In other words, the Bank of Japan is taking partial ownership of its financial system. 

The Australian Reserve Bank is also on the move.  It reduced the country’s benchmark interest rate to 3.25% and announced an A$42 billion stimulus plan.  In the UK, there is investor expectation the Bank of England will cut its interest rate to 1.0%.  Other countries like Poland, China, and Hungary are also busy introducing new stimulus plans which include pumping billions into economies to stimulate consumer credit and spending and stop the downward spiral in the economies.

There is more than one way to get guidance it seems.  Though the major corporations are not giving specific guidance as to this quarter’s financial results, there is plenty of guidance for the currency markets to be found in all of these stimulus plans.  For example, Japan has said the purchase of financial shares may cause the yen to weaken in the near future. 

But as far as the US dollar and yen go right now, they are showing signs of weakening against other major currencies due to the stimulus activities described earlier.  The appeal of the safe haven currencies declines when investors gain some confidence in the equity markets.

The yen weakened to 115.15 yen against the euro.  The US dollar fell to 89.48 yen per dollar and to $1.2872 euro per dollar. 

In the UK the pound is under continuing pressure as investors look for even one sign the economy has some resiliency.  The most recent bad news was a report indicating the purchasing and supply index dropped.  The UK pound declined against the euro to 90.39 pence per euro. The pound declined against the US dollar to $1.4221 and against the yen to Y27.23.

The Australian dollar rallied on the economic stimulus package the government announced.  The loonie strengthened to US$.6337 against the US dollar and to Y56.74 against the Japanese yen.

As far as guidance, analysts have been tracking the movement of the stock market against the US dollar rate.  As the equity markets rise, the value of the dollar falls and visa versa.  So there’s no official guidance right now, but savvy investors still understand the importance of understanding the interrelationships of the financial markets.