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

  • 2009-03-04

The U.S. real estate market is sliding down to a six year low. Research performed by S&P/Case-Shiller showed that in the 4th quarter of 2008 real estate prices throughout U.S.A. had fallen by an average of 18.7 percent year-on-year, reaching the same level seen in 2003. What is more important, the research shows that currently over 10 million homeowners in the States owe banks more than the value of their collateralized property, causing high levels of concern over potential bankruptcies. The sales volume on the secondary home market fell by another 5.3 percent, which is the lowest since 1997. This came alongside news that the sales of property taken away by banks on nonperforming loans (with large rebates) are growing steadily. Probably the most shocking news that came out last week was the revised GDP figure for 4th quarter of 2008. It revealed that the U.S. economy had fallen by 6.8 percent instead of 3.8 percent as was previously estimated. The difference was mainly caused by a worsening trade balance. Gross investments and consumption were also weaker than was reflected in older data, but to a lesser extent. Corporate news in the U.S.A. was headed by General Motors, which informed investors about a 4th quarter loss of $9.6 billion. One of the biggest automakers in the world is currently bargaining for new aid from the state. Another giant in need is Citigroup, which agreed to increase the stake held by the government in its shareholding structure to between 30 and 40 percent.          


S&P has downgraded Latvia's sovereign rating by two notches to the speculative level. The step cannot be deemed unexpected, as the Latvian economy is crumbling at a dire pace. The country's only hope is financial aid from other EU member states, as the IMF would be unlikely to expand its loan to Latvia. This hope may become very hazy as the largest EU countries have shown their unwillingness to give aid to floundering Eastern European countries. This unwillingness is the result of the terrifying economic data that keeps coming every week. This week wasn't an exception. Swedish GDP fell by 4.9 percent in the 4th quarter of 2008 against the previous year's figure. Industrial orders in the eurozone in January have seen a consecutive decrease of 5.2 percent against the previous month, which added to a total annual fall of 22.3 percent. The figure has now reached the same level it was at in the year 2000. There's no surprise that all EU business climate indexes went down again in February compared to previous months. New construction volumes in France diminished by 20 percent during the last 3 months compared to the same period last year. Unemployment was the only economic figure that was growing steadily throughout the EU. Spain with its 14 percent unemployed is the uncontested leader of the eurozone when it comes to unemployment. Spain's only competitors within EU can be found in Eastern Europe 'swith high levels seen in Slovakia (10 percent), Latvia (12 percent) and others. The average unemployment figure in EU has grown by 0.1 percent in January to 8.2 percent.      

Russia and CIS

Russia continues searching for its place in the falling economy. Last week, the Ministry for Economic Development of the Russian Federation confirmed that Russia's GDP dropped by 8.8 percent year-on-year. Excluding the 0.9 percent growth in services, however, the GDP fell by a much more drastic 23 to 24 percent. Due to the strategy of the bank of Russia, the money stock in the country dropped by 7.2 percent year-on-year 's the sharpest drop to date. There are persistent rumors on the market that Russia has asked China for a new loan in the amount of $50-100 billion maturing in 20 years, while Russia would make payments in oil and gas rather than in currency. To further confuse the issue, Russian officials have made numerous contradictory statements about the country's possible recovery. On the same day, the head of the Ministry of Economic Development Elvira Nabiullina stated that the GDP will grow at the oil price at $50 per barrel, while Russian Finance Minister Alexei Kudrin forecasted that the GDP would drop at the oil price of $55 per barrel.

*** Written using materials from Bloomberg and Reuters