Posted April 24, 2009
The UK pound is under downward pressure as UK economic data indicates a struggling economy. In direct opposition, the Chinese yuan is stablized as the economy responds favorably to the government stimulus spending.
The worrisome news it is going to take longer to recover from the recession than once believed is offset by the good news there are some signs an economic recovery wants to develop. Unfortunately the toxic assets and increasing unemployment around the world are keeping the brakes on economic improvements. The US now has over 6 million unemployed claiming benefits and Spain reported a whopping 17 percent unemployment rate.
The G-7 is meeting discuss how to assist an economic rebound. It is a sustainable recovery that is needed, and not just signs here and there that some markets, such as the credit markets, are resuming more normal operations. But as long as the toxic assets remain on the bank balance sheets, there is agreement a full recovery will just not be possible.
In the US, the stress tests being performed on the banks are showing the distressed asset problem is growing. Loan defaults continue to grow creating an enormous need for additional capital despite US Treasury Secretary Geithner saying he believes most banks are adequately capitalized. Nonperforming assets have tripled and quadrupled over the past year at most financial institutions.
It is not just banks though facing deteriorating balance sheets. In the UK the revenue decline and debt increase is like a perform storm forming. The GDP contracted the most in the first quarter of 2009 then it has since 1979. The UK credit rating is at risk due to the nation’s finances “deteriorating rapidly” per Moody’s Investors Service.
Naturally, with this kind of news, the UK pound began to slide. It weakened to $1.4606 per US dollar. It also weakened against the euro to 90.76 pence per euro. It fell 1.8 percent against the yen.
The yen strengthened against the US dollar to 97.07 yen per dollar.
The Australian and New Zealand dollars each weakened against the yen on concerns demand for exports will remain suppressed due to the global recession. The Aussie weakened to 69.06 yen per dollar. The New Zealand dollar weakened to 54.51 yen per New Zealand dollar.
Both Australia and New Zealand are struggling to deal with rising unemployment and falling tax receipts. The Australian unemployment rate is now at 5.7 percent and is expected to continue rising through the end of the year. The country’s benchmark rate is at a 49-year low at 3%.
What will help Australia and New Zealand economies is a thriving China. Investors are bullish on the Chinese yuan as the GDP forecast for growth is increased. The stimulus programs undertaken by the People’s Bank of China and the Chinese government seem to be working.
The yuan strengthened to 6.8265 yuan per US dollar. China is indicating it plans on adhering to a fairly loose monetary policy as lending surged sixfold this year compared to the same period a year earlier.
Other Asian currencies on the move include the Malaysia ringgit and the Singapore dollar. Both countries instituted policies of lowered interest rates and increased government spending that are now taking effect.
The ringgit strengthened to 3.5840 ringgit per US dollar. The Singapore dollar rose to S$1.4904 per US dollar. The Taiwan dollar also rose against the greenback to NT$33.711, as did the South Korean won to 1,343.05 won per US dollar. Investors have pumped a net $1.1 billion US dollars into the Asian markets this week.
The signs of stabilization in Asian markets are welcomed. Export order and manufacturing fell by a smaller amount than had been predicted in February.
There is some more bad news coming down the pike, but it remains to be seen if investors have already priced it into the markets. The giant auto makers Chrysler and General Motors are clearly headed for bankruptcy as unsold cars and debt drag the companies down into an abyss. Chrysler will most likely “disappear”, whereas General Motors may end up as a restructured, smaller and new company.