The Word from Hansard (31st Mar 2009)

The Word from Hansard

The US government and the Federal Reserve have spent, lent or guaranteed USD 12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stimulate its economy. New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include USD 1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from US banks. The money works out to USD 42,105 for every man, woman and child in the US and 14 times the USD 899.8 billion of currency in circulation. The nation’s gross domestic product was USD 14.2 trillion in 2008. President Obama and Treasury Secretary Timothy Geithner met with the chief executives of the nation’s 12 biggest banks on 27 March at the White House to enlist their support to unlock a 20 month freeze in bank lending. "The president and Treasury Secretary Geithner have said they will do what it takes," Goldman Sachs Group Inc Chief Executive Officer Lloyd Blankfein said after the meeting. "If it is enough, that will be great. If it is not enough, they will have to do more."

Asian currencies headed for the first monthly gain since December as stocks rallied on optimism government stimulus spending will help revive regional economies and draw investors back to emerging markets. The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active currencies excluding the yen, climbed 2.3% in March, trimming a loss for the quarter to 3%. Overseas funds bought more shares than they sold this month in South Korea, Indonesia, Taiwan and Thailand, putting the MSCI Asia Pacific Index on course for its biggest monthly advance in almost a decade. The rally in Asian currencies may be reaching a peak, according to Calyon, a unit of France’s Credit Agricole SA. "Various currencies like the Korean won have been heavily oversold and were due for some sort of pull back," said Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong. "Some equity markets rallied around 20% which eased risk aversion and helped capital flow back into many Asian markets."

The euro is poised to gain against the dollar as long as the currency stays above the so-called support at USD 1.3065, said BNP Paribas, citing trading patterns. Support at USD 1.3065 represents an ascending trend line that connects the euro’s lows of 4 March through to 11 March, according to data compiled by Bloomberg. Support is a level where buy orders may be clustered. The euro rose to USD 1.3274 in London earlier today from USD 1.3199 in New York yesterday.

Crude oil rose, set for the biggest monthly gain since June, on speculation governments’ widening stimulus plans will boost the global economy and fuel demand. Crude gained as much as 1.7% to USD 49.24 a barrel on the New York Stock Exchange. "There are expectations that later in the year we are likely to see some of these efforts working," said Victor Shum, a senior principal at consultants Purvin & Getz, Singapore. This will "thereby improve the global economy and have a positive impact on demand," he said. Crude for May delivery was at USD 48.94 a barrel in Singapore earlier today.

Gold rose in London, heading for its best quarter in a year, as a weaker dollar boosted the demand for gold as an alternative investment. Bullion, which yesterday traded at its lowest since 18 March, and the dollar have returned to an inverse correlation in recent weeks after moving in tandem for most of 2009 as investors sought havens from weak banks and falling stock prices. "The euro is picking up against the dollar and that’s pushing gold higher," said Sagiv Peretz of Finotec Trading UK. Bullion for immediate delivery rose USD 4.26 to USD 920.10 an ounce today. It is up 4.3% this quarter. Gold has gained the past three months on concern that government stimulus packages will devalue the dollar and stoke inflation.

Spotlight on the G20 Summit

The Group of 20 of the world’s leading economies meets in London on Thursday this week for a one-day summit. Among the key issues that will be discussed:

Reviving the World Economy

The key aim of the summit is to agree global action to do "all it takes" to boost the world economy. Governments are being urged to take "coordinated action" to stimulate their economies by boosting spending. The IMF has suggested a fiscal stimulus of at least 2% of GDP, amounting to USD 2 trillion, will be needed. But its latest figures show that although some countries, including China and the US, are meeting this target, others, including France and Japan, are not.

Restoring Lending

One of the key issues still depressing the world economy is the continuing trouble in the banking system. Banks still hold many toxic assets, many based on risky mortgages, that they are not able to value or sell. So the G20 is likely to push for quick action by governments to resolve the situation.

Tougher Regulation

The underlying cause of the slowdown, many people believe, was the lax regulation of banks and other financial institutions so the G20 summit will try to strengthen the international regulation of banks to prevent future crises. This is likely to include requirements for banks to hold more capital against the possibility of future losses and all financial institutions that could pose a risk to the system will be regulated. There will be plans for global oversight of the risks that the financial system is running as a whole, so-called "macro-prudential regulation".

Boosting the International Monetary Fund (IMF)

The IMF is running low on funds after bailing out seven countries in the past six months. It has about USD 150 billion to lend this year. UK prime minister wants at least USD 500 billion available to the IMF. Japan has already committed a USD 100 billion loan and the EU has offered an additional USD 100 billion. However, developing countries, including China, are reluctant to loan the IMF more cash unless they have more say in how the IMF is run. They also would like a permanent increase in the IMF’s resources, perhaps by letting it create its own currency. The IMF is likely to also be given more powers to monitor risks in the banking system.

Avoiding Protectionism

The G20 summit is likely to re-affirm the commitment of world leaders to open trade. Devising a mechanism for monitoring free trade will be a difficult challenge for the summit.

Developing Countries

The World Bank estimates that an extra 53 million people will fall into poverty because of the global recession. There are concerns that many countries are now likely to cut their development aid. Gordon Brown would like world leaders to maintain their aid, and if possible to increase it in line with targets agreed at Gleneagles in 2005.

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The investment objective of this new protected fund is to provide protected capital appreciation through investment in a basket of assets with exposure mainly to global equity and debt markets. The investment in a range of asset classes, with allocation across different markets and sectors, is designed to provide an appropriate level of diversification. The fund will provide a minimum level of protection of 80% of the highest ever Net Asset Value (NAV) and the opportunity to benefit from unlimited growth potential of global financial markets. It is designed to deliver capital growth whilst reducing volatility and limiting downside risk.

The fund is available in four currencies: US dollar, euro, British pounds and Norwegian Kroner. For further details please consult your Hansard Account Executive who will be able to assist you further.

The information set out herein has been obtained from various public sources and is sent to you by way of information only. Hansard can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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