Global Economy Review - Nov 13 , 2008

World Economy:

The world's entry into a period of recession is certain now, with the 3 biggest economies of the world already slipped into recession and with 2 of those economies the US and Germany already announced recession officially.

The Emerging economies including the BRIC countries are facing severe slow down. IMF has forecast that chinas growth will slow down to 8% and india to 6.1% in 2009. Russia is facing tough challenge ahead of it with its stocks markets falling heavily and shows investors losing confidence over the economy

The period of inflation is a history and we are staring at a possible deflation phase where prices are falling below production cost. Retail sales across the developed economies are at a multi year lows. Oil has slipped to $55 dollars, even with the production cuts announced by the OPEC. Gold prices have also fallen to an year low.

The landscape of the US financial sector has changed forever. There are 3 super banks now in the US namely Bank of America, JP Morgan & Wells Fargo with a cumulative net worth of nearly $2 Trillion in terms of assets. Some Investment banks have changed their business model into banking model. Some like Lehman bros have filed for bankruptcy. Some like Meryl lynch. have merged with other institutions.

The Auto sector in the US is the next domino to fall in the crisis. GM is staring at a possible bankruptcy. What was once thought to be an impossible event has happened now. GM is the largest Auto maker in the world in terms of global sales. Too big to fail ? is it ??

The slow down is slowly spreading to the global economies and companies. Arcelor Mittal the largest steel maker has announced a 30% cut in production. In India tata corus has slashed production, Ashok leyland has announced a 12 day work cut in a month. Global corporate giants like Intel, Cisco, GE all have slashed their growth forecast and has cited caution in their future outlook.

In terms of Jobs US unemployment has hit 6.5%, normally in recession times unemployment rate rises to 9-10%. UK has lost 1000's of jobs. In India signs of job cuts are setting in as the effects of slow down are being felt slowly across all sectors.

Stock Markets:

US Markets are nearing the lows made on OCT 27th, Nasdaq made a new closing low. Its important that the recent lows hold or else we may see another down fall in world equities.

Chinese stocks market made a new multi year low with the markets losing almost 60% of its value from its highs.

The Japanese Yen is trading near the lows of 94 that it made on OCT 27th. Its important that these levels should hold. Else we may witness another round of carry trade unwinding. Weaker yen will affect Japanese exporters.

In India Nifty might retest it lows of 2252 , there is a chance of it to take supports at 2500 levels. But then again a lot depends on world market cues.

Money Markets :

The Money Markets have thawed considerably. It was literally frozen a few weeks back with the LIBOR rates peaking at above 4%. Banks were not lending to one another. The situation has improved and LIBOR has fallen substantially to near 2% levels.

Global Central Bankers are cutting interest rates across the board in an effort to improve the credit flow in the system. More rate cuts can be expected in coming weeks.

The G20 leaders meet in Washington on Nov 15th, The outcome will send important signals to the markets. A lot depends on what measures are undertaken after the meet.

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