Where Is the Cheer?

Posted December 24, 2008

The US dollar weakened against the yen and the euro as US economic news proved the recession has not found bottom yet. The yen gained against the euro as investors decrease risk appetite while waiting out the holiday.


There is little cheer to be found in economic news as global eyes turn to the US for comfort and joy.  Everything is falling, falling, falling along with Santa Claus down the chimney.  In both the US and the UK, home prices and sales are continuing to decline.  Consumer spending is dropping. Durable goods purchases are falling.  Imports and exports are falling.  Consumer income is falling.

This is not meant to be a doom and gloom report on the eve of the holiday, but there is just little good news to report right now.  And bad news affects all of the markets including equity, commodity and currency markets.  The equity market continued a slow decline on the Dow Jones Industrial Average (lost 100.28 points) and a fast decline on the NIKKEI (lost 206.68 points).  And the biggest shock of all is in the commodity markets where the price of a barrel of crude oil fell below $38. 

Trading in the markets, including the currency markets, has been called muted and slow. The yen is the biggest news as of yesterday as Japan slides deeper into a recession.  The NIKKEI stock market decline has increased the appeal of the yen as a place to park money during the credit crisis.  At year end, investors are looking for safe haven again in order to avoid any further losses before the year closes.  The yen gained against both the US dollar and the euro. 

Against the euro, the yen gained to 126.27.  Against the US dollar, the Japanese currency rose to 90.46 yen per dollar.  For the year the Japanese yen has seen a 29% increase against the euro.  That number is 23% against the US dollar.  The rise is attributed to Japanese investors repatriating funds earned from overseas investments.

Canada’s dollar ($.8236) began to strengthen against the US dollar. The strengthening is due to the Canadian government’s announcement it plans to restructure toxic commercial paper on bank financials.  The government came to an agreement with the banks and investors will be able to recover some of their money early next year.  The Canadian dollar is referred to as the “loonie” and has been weakening over the last week as the country faces the same recessionary pressures as the rest of the world.

Because the UK economic numbers are just as depressed as those in the US, the sterling has been weakening.  The Bank of England is expected to cut interest rates by 75 basis points in January which will set the benchmark interest rate at 1.25%.  There may be one more cut after that if the recession does not show any signs of easing.  The UK pound ended the day yesterday at $1.4737 against the US dollar. 

Other currency news is found in Australia and New Zealand again.  The Australian dollar ($.6813) weakened against the US dollar as did the New Zealand dollar ($.5661).  The currency weakening in both countries is due to the deepening global recession which will probably lead to additional interest rate cuts making the assets less appealing for investors.

So the economic news is not happy this holiday, but there is a dim light in the distance.  Some analysts are predicting the recession could very well begin to turn around in June or July 2009.  This would mean the recession lasted 18 months and would be the longest post WWII recession recorded to date.  But it is great to hear people start to talk about the end of this crisis.  Perhaps this is the cheer needed just in time for Christmas.