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Global Economies

Davos, where the leaders, movers and shakers of the World usually gather for a bit of a shindig but a much more sober mood this time round. The IMF latest report has given the UK a terrible forecast for 2009, putting us below all other comparable countries. This is denied by Brown but it is not going to be a cause for congratulations whichever figures prove correct.

Forecasters are trimming the growth figures for all economies even China might fall to a relatively pedestrian 6% which is almost as bad for them as contraction is for the US and Europe. Realignment of currencies is taking place around the World with the dollar getting a bounce from Obama’s election and early decisions on economic matters. Many will be waiting to see the effects of the big bang that Obama and the Democrats hope will energise the US economy.

The Gaza strip conflict has died down although there is no proper settlement. This has helped the price of crude to stabilise and stocks in the US to improve in spite of a fall in Northern hemisphere temperatures. We are through January so the worst could be over but local forecasts this week are not encouraging.

I have noticed that The Baltic Dry index has been steadily rising over the last fortnight to 1070 (It was between 700 and 800 during December). It seems trade is picking up. Perhaps concerted effort from the big world players is having a meaningful effect. ‘Green shoots possibly’?

January turned out to be the worst ever performance for US stocks in spite of the US and world hopes for a new beginning with the Obama presidency. Analysts expect that this quarter will be at least as bad as the last quarter (when the economy shrank at the fastest rate for 27 years) as industries continue to destock.

UK Economy & Politics

A bit of muckraking has led to four labour peers being rightly castigated for being recorded agreeing to help journalists (for cash) by arranging amendments to parliamentary bills. Other things were admitted on camera and understandably the government popularity fell further.

A general one day strike in France which proved very solid was soon echoed in the UK by a fracas over Italian and Portuguese workers being engaged at a UK refinery. A foreign firm having won a contract at a more competitive price is being targeted.

These strikes may be the straws in the wind as economic hardship hits workers and families. The prognosis for 2009 is not at all good. All car factories are taking longer Christmas breaks while Honda at Swindon is to close for 4 months over spring/summer period. Lucky for their workers the arrangement will ensure workers do not lose their jobs. Not so with other factories.

Currencies and rates

Last week particularly, demonstrated the huge movements in currencies that is currently taking place. The yen has strengthened but the Euro dropped and fringe euro currencies such as the zloty (Poland) and forint (Hungary) were almost shredded. Sterling made a small recovery against yen and dollar after hitting it’s worst position against the yen for 23 years. It is thought the bounce took place because our banks had recovered quite a lot earlier in the week after Barclays promised it would beat forecasts. In addition Soros announced he had stopped shorting sterling now having made a killing over the last two months.

Interest rates are at their practical lows, although the Eurozone rate may still be trimmed a little. Inflation is not the threat so easing will not hurt. Euro bosses will probably keep some of their weapons in reserve by reducing the speed at which they cut.

Commodities

Commodity prices are still low. Main weakness is in base metals while precious metals are high. In sterling terms, gold hit a new record high last week on safe haven trends. Some crop prices are turning up again after huge falls since mid 2008. Oil remains low in step with US stocks but OPEC has hinted it may trim production after it’s next meeting. US stocks have been so high that their benchmark crude dropped to $10 discount on Brent crude. Almost unheard of because the prices are usually reversed i.e. Brent less than West Texas Intermediate.

UK Stocks

The latest upward trend in stock prices seems to have petered out a little of late. New Highs were only 6 and new lows 58 showing much less volatility than the last months of 2008. As I said last month the bear rally is not to be trusted. Nick Louth in fact said in the FT this week that he would sell some of his remaining stocks to bring his situation to 50% cash and buy back later at expected bargain levels because he believes market losses will escalate.

Mobius investments

NNo change in our investment position but Blackrock Mining Warrants have moved off their lows of 0.51 and now stand at 0.55. Somewhat better but nothing to get excited about.

Martin Longman - Acknowledgements to Daily Telegraph and FT.