Green Shoots of Recovery, or Another False Dawn?

By: Mike Campbell
Meeting in Frankfurt, Germany yesterday, the European Central Bank (ECB) decided to hold interest rates at their current level (1%). The current rate is the lowest in the bank’s 10 year history and has been maintained since May as one measure to supply money markets with cheap finance to stimulate recovery within the EU. ECB head, Jean-Claude Trichet, forecast that the “severe contraction” that the European economy had experienced would be followed by a period of “stabilisation and gradual recovery”; hardly earth shattering news. The bank has revised its gloomy assessment for growth within the economic block and expects things to be not quite as bad as it previously thought. Current figures suggest that the economy will contract by between -3.8 to -4.4% in 2009 (the previous prediction was -4.1 to -5.1%). Trichet pointed out that their analysis incorporated a “large degree of uncertainty”. To amplify his point, figures from the Eurozone indicated that retail sales fell in August whilst the Purchasing Manager’s Index recorded a value of 50.4 for the same month which indicates an increase in economic activity. The message is clearly “watch this space”!

Yesterday’s market close in Europe showed all the major indices down on the day. In contrast, both the Dow and Nasdaq closed up. In early trading today, all of the European markets are in positive territory. The Nikkei index closed slightly lower; it was down by -0.27% points at 10187.1 points.

On the currency front, the US Dollar was trading lower against the Yen, the Euro and the British Pound Sterling. It was also fractionally lower against the Chinese currency, the Yuan.