The week's top news in world financial markets from Maximus Capital

  • 2009-02-11

The U.S. savings rate jumped to 3.6 percent from less than 1 percent in the past few years. After years of unrestrained spending (the U.S. saving rate reached as much as 12 percent in 1982 and dropped to 0.5 percent in 2008), Americans have been tightening their belts. Even with a stable income annualized expenditures would have fallen by $300-400 billion. Considering the fact that the income of Americans has dropped by $350 billion from its maximum level in the summer, as well as multiplication effect, the overall demand may shrink by more than $1 trillion by the end of 2009.

In addition to this bad news, in its monthly report the Labor StatisticsBureau stated that 598,000 people lost their jobs in January (a 34 year high). The total number of unemployed people has reached 3.6 million since the beginning of recession in December 2007 and the unemployment rate has reached a 17-year high of 7.6 percent.


According to HBOS research, U.K. housing market prices have grown slightly in January compared
to December. However, the monthly growth was not enough to prevent a record annual price drop of 17.2 percent. Interestingly, that was the most positive news to come out of European economies 's the rest of the data that came out last week was negative. Industrial production outputs in Spain declined by 19.6 percent in December 2008 against December 2007, while in France 45,800 have lost their jobs. In January, German car manufacturers produced 34 percent fewer cars, contributing to a 39 percent decline in exports.

Corporate news was even more depressing: Deutsche Bank reported an annual loss of 5 billion euros. British Petroleum upset its shareholders with a quarterly
loss of $3.3 billion. The central banks of many European countries continued using monetary tools to combat the negative wave. The Central Banks of Norway and the U.K. both cut their refinance rates by 0.5 percent, to 2.5 percent and 1.00 percent respectively, leaving very limited space for further reductions. The European Central Bank has left its rate at 2 percent, though ECB President Jean-Claude Trichet has hinted at possible cuts in March.

Russia and CIS

Fitch has downgraded the Russian sovereign debt rating by one notch, from BBB+ to BBB. The decision was taken despite the fact that a few months ago Fitch analysts argued that there was no reason to downgrade Russia because of abundant reserves. In defense of Fitch inconsistency, it should be noted that Russia's huge pre-crisis reserves of more than $600 billion are melting at a threatening pace and fell to $386 billion last week.

Russian government aid programs, alongside private capital outflows from the country, have led to a $94 billion decrease in FX reserves during the last quarter of 2008 alone. It seems that the huge decline frightened not only Fitch analysts, but Russian officials as well. They have spent the last week trying to reshape aid programs for businesses and the financial system. As a result, a $50 billion program refinancing Russian companies' external debt has been ceased and the government took a break to work on some fresh new ideas. They are likely praying for oil prices to start rising again.

*** Compiled using materials from Bloomberg and Reuters