Holding Our Financial Breaths

Posted November 04, 2008

The financial indicators continue to show a continued decline into a recession. Global governments plan further interest rate cuts to spur economic recovery.


The smooth transfer of power in the US government is one of the primary features of the country which leads to a stable currency.  The US will vote on Tuesday, 04/October/2008, for a new president, and countries around the world are waiting and watching to see who gets elected.  It could be a seasoned veteran politician or a man who promises change in a number of areas.  Both have vowed to take immediate action to improve the economy.

The global markets hold their breaths as the US votes, because the direction the US takes in terms of trade agreements, banking stability, and even military spending will have a direct impact on currency rates.  In Hong Kong, for example, the feeling is that Obama will provide more and faster economic stimulus for the US economy which impacts import orders.  On the other hand, Obama is a member of the Democratic Party and that party is not seen as friendly to business.  There are predictions that if he wins the election, the stock market will take a dip.

Yes, the upcoming election is affecting financial markets in a number of ways.  In the meantime, investors are playing a wait-and-see game until the results are in on 04/November/2008.  The Dow Jones Industrial Average (DJIA) held steady on Monday posting only a slight decrease of 5.18 points to end at 9,319.83.  The FTSE rose to 4,443.28 which is a 65.94 point increase. 

The NEKKEI, on the other hand, rose 4.59% to 8,970.56 for a 393.58 point increase.  The stocks rose as the yen remained stable against the dollar and exporters made gains as the Japanese market anticipates year end interest rate cuts around the world.  The additional interest rate cuts that are anticipated to be made by the Reserve Bank of Australia, the European Central Bank, the Bank of England and possibly the Federal Reserve Bank of the US are making it less attractive for investors to use the Japanese yen to buy overseas assets.

In terms of the dollar, the euro declined to $1.2628; the British pound declined to $1.5806; the Canadian dollar rose to $.8430; the Australian dollar rose to $.6791; the New Zealand dollar rose to $.5936; the Swiss franc declined to $.8521.  It was a mixed bag of currency increases and decreases. There is virtually no currency that will escape the trickle down effects of who is chosen as the next US president.

To be honest, it feels as if investors are tiptoeing around the markets right now just waiting for the piece of news that will drive markets one way or the other with currency rates to follow.  People are currently expecting poor economic news, so as long as it is not as bad as it could be, the markets are responding carefully.  For example, the Institute for Supply Management in the US posts the manufacturing index which indicates when the economy is expanding or contracting.  Anything below 50 signals is considered a contraction and the report yesterday said the index fell to 38.9.  Yet the DJIA held with an almost eerie calm.

The feeling is that investors are simply waiting to see who gets elected president of the United States.  Right now the bad economic news such as falling auto sales, lower construction spending, falling gross domestic product, and declining manufacturing indices are being taken in stride.

By the way, the US alone accounted for $2.27 trillion of losses in equity markets in October.  Worldwide there was $5.49 trillion lost.  Year to date the global markets have lost $16.22 trillion.

And yet we wait…to see who will be the next US president.  One thing is for certain - whoever it is will have a domestic and global recession to handle.