Great time for Euro possessors in the UK

Since the subprime crisis and with a current slowing down economy and the recession, the British Pound is losing value! In one year the pound dropped 22 percent against the dollar and 12 percent versus the euro as slumping house prices sent Britain to the brink of a recession.

Living currently in London and as a French people (Euros owner) this situation is profitable for me. Moreover, the inflation is now decreasing and we are expecting to see a real drop in the goods prices in the few next months.

However, these two last days, the Pound seemed to recover a little bit. Indeed, lately the stocks have been growing up and the FTSE 100 is getting some points back. Will this recover continue ?

One thing's sure, I won't wait until it recovers to buy my Xmas presents ;)

The UK consumption

Nowadays, the consumption in the UK is decreasing and it is mainly due to the current financial crisis and the inflation. Which impact do these two factors have on the consumption ?

Even if the latest figure of the Retail Price Index shows a drop in inflation (due to a decrease in oil price) and goes from 5.00% in september to 4.2% in october, inflation remains high and the people expenses keep slowing down! Moreover, the financial crisis has put the consumers in a state of uncertainty concerning the future which will lead to an increase in people savings. Thus, inflation combined with credit crunch are stopping the consumption.





Marks & Spencer, one of leader in the UK retail market, is today feeling the effect of the current unfortunate events. The following figures show the sales evolution of the brand between september 2008 and october 2008:


•UK sales: -1.6%:
•General Merchandise: -2.9%
•Clothing: -3.5%
•Home: +2.9%
•Food: -0.5%

The CEO of the company announced a drop in profit for 2008 (2008 half year profit £300million against £452million in 2007) What are the measures taken by the government to stop these collapses of major retailers?

One of the solution brought was to cut the interest rates (which, according to Mervyn Allister King, are expected to reach 1% by the end of december 2008) we should then assist in a future state of deflation which will permit to relaunch the consumption and then the economy.

However, we don't know yet when the recession will be over, and we can ask ourselves if the cut in interest rates will be enough to relaunch the economy?!

AIG another bail out ?!

On the 10th of November, the AIG Company reported a loss of $24.5bn from July to October. This announcement led to a $40bn infusion from the government by purchasing preferred shares of AIG stock. In total, AIG got a $150bn aid divided as following:

– 60bn loan
– 50bn in capital
– 40bn preferred stock

For this new injection, the Federal Reserve is reducing the previous $85 billion loan it had made available to AIG to $60 billion and is also replacing a separate $37.8 billion loan to the insurance company with a $52.5 billion aid package.

I personnally think that this bail out won't be the last one for the firm in trouble. How much money does the Federal Reserve is ready to put into AIG ?

Where is this money really going ? When we know that the chairman and some employees took few days in the California’s St Regis resort in Monarch Beach spending $400 000 in rooms, meals, drinks, golf and spa treatments we can ask ourselves if the money is used in the best way! Unfortunately, some aspects of the big companies will remain unknown!

Incredible CUT !

Today the Bank Of England cut its interest rate by 1.5% creating the surprise into the financial market! Two weeks ago, we knew that the BOE wanted to realize an other cut but at this time they were announcing 0.50%. Then, two or three days ago, a 1% cut was expected and it is finally 1.5% which has been cut reaching a 3% interest rate. According to the financial times, the UK rates fell today to a 53-year low!

Will the election of Obama on Tuesday 4th November improve the confidence of the US borrowers and are we going to see an improvement in the financial market? I think that it is still too soon to know, this election will certainly help the population to recover the hope they lost lately!

This big cut from the Bank Of England is the beginning of several others in the few next weeks! Good news ? Bad News ? By cutting the interest rates they will effectively stimulate borrowing which is a good news but isn't it a bad news to see an other cut? It is a sign that the market is still not recovering and is still suffering so what can we think about that ?!
I personnally think that the next months will be very interesting to follow, a lot of things will happen, the history is currently being written!

Why oil price is falling ?

After reaching a peak of $147.50 a barrel in July 2008, on wednesday the oil price fell under $70 a barrel . What are the reasons of this event which some economist already see like an opportunity to the relaunch of the economy ?

The main reason is as you can guess the current financial crisis which is leading the global economy to the recession. The US asked for a cut of the barrel's price to permit the economy to be relaunched. Effectively, a cut of this price would mean a decrease of the inflation directly impacted by the oil value. If the inflation decreases then it will be the interest rates which will be automatically lowered and it would thus encourage the borrowers to ask for loanable funds. The decrease of the price of oil appears like a smart solution to improve the economy.

Moreover, this decision seems to be forced now that the consumption of oil is decreasing too, to increase again the demand of it, lowering the price was unavoidable. This fall poses a threat to the suppliers because if the price reach $70 a barrel a lot of new projects will be cancelled or at least postponed!

What real impact will this decrease have? Will the expected effects result?

France's acquaintance with the financial crisis

(Main indexes of world financial market place on october 6th)

Until now the French financial market was not really feeling the impact of the financial crisis. Since October 6th, after a sharp drop of most of the US stock exchange indexes (Dow Jones closure under 10 000 points, FTSE 100, 4589.2) the french stock exchange index, CAC 40, fell to 3711.98 points wich represents a loss of 9.04% which is the biggest drop of its history since its creation in 1988.

For the first time since the begining of the current financial crisis, France is directly impacted. Indeed, the french magazine LePoint, give us some figures concerning the fall of the main companies shares value part of the CAC 40 on this, now famous, monday:

• Crédit Agricole : -10.04 %, 13.84 euros
  
• Société Générale : -11.83 % à 60.52 euros
  
• Natixis : -16.04 %, 2.25 euros
  
• Axa : -13.10 %, 20.07 euros
  
• BNP Paribas : -5.39 %, 67.50 euros

In september, the financial crisis was still mainly american and british, now the french people realise better that the national economy is also in trouble. Until now, even if the CAC 40 was decreasing each month, the french people were still optimistic and believed in a future recovery.

(CAC 40 from novembre 07 to now, source: lesechos.fr)

In answer to this drop the french government decided to create a structure, hold by the state, to back up the banks financially and without deadline. This is the first real measure taken by the french government to face the financial crisis. Will it be enough to save the french structures ? In creating this, they hope to recover the trust of the population in the banking system!

We don't need to argue anymore to constat that on this monday 6th October, France lost its optimism!

Financial crisis and the US election

In 40 days from now the US presidential election will take place, where the democratic canditate, Barack Obama, will face the republican canditate, John Mc Cain. How is the current financial crisis influencing this? How are the two candidates dealing with it. Are they using the financial crisis to promote themselves in the eyes of US population?

A few days ago, Barack Obama announced during a meeting "the crisis sweeping Lehman Brothers and others Wall Street firms posed a major threat to the US economy and underscored the need to modernize the financial system". The democratic canditate thinks himself to be the right person to take up the challenge concerning the issues of this important financial crisis. Following a poll made by CNN, 53% of americans think Obama being able to deal with the current crisis and 39% see Mc Cain in this role.

Indirectly, we can say that the financial crisis influence the US election indeed 47% of americans attribute the crisis to republicans. Mc Cain lays the responsability for this crisis at the finishing presidential's door. The two canditates know that the winner of this race to the white house will be the one able to convince the US population of his ability to solve it.

Thus, John Mc Cain, on wednesday decided to suspend his campaign to focus on the financial crisis! Barack Obama decided to continue his campaign and rejected to debate with the repubican accusing him to use the financial crisis as a politic issue!

I think that Obama as Mc Cain are aware of this opportunity which represents the financial crisis for winning the people trust and approval. However Obama seems to be advantaged due to the going out government juged responsible for the current situation!