Global shares weakened on Monday and the dollar fell broadly, weighed by signs of a deepening recession in Japan and the euro zone and concerns about the banking sector around the world.

China’s interest rate cut — the fifth move since September — failed to boost stocks as data showed the deepest plunge on record in euro zone industrial new orders and a record annual fall in Japanese exports in November. Ireland’s weekend announcement that it would take stakes in its three main banks for 5.5 billion euros further underlined the global scope of the worst financial crisis in 80 years.

“One thing you can say for sure is that there has been no Christmas rally,” said Philip Isherwood, strategist at Dresdner Kleinwort.

“The macro outlook is savage. And we want earnings season out of the way. We know it’s going to be bad.”

The MSCI world equity index fell 0.15 percent.

The index rallied last week, rising 20 percent since November 21, when it hit the 5-1/2 year low. It is still on track for its first monthly gain in December after six successive months of losses.

“People can’t see where the turnaround is going to come from — the one piece of good news is that most of the bad news has been discounted,” said Justin Urquhart Stewart, investment director at Seven Investment Management.

The FTSEurofirst 300 index of leading European shares fell 1.4 percent, led by falls in banks such as BNP Paribas . Emerging stocks fell 1.6 percent.

U.S. stock futures were pointing to a slightly firmer open on Wall Street.

EURO AND EASING

The euro rose 0.4 percent to $1.4123. It was up over 1 percent against the dollar at one point as investors grew worried about the economic impact of the U.S. car industry’s expected restructuring. The U.S. government moved on Friday to throw its automakers a $17.4 billion lifeline.

The euro’s trade-weighted exchange rate is up more than 7 percent this month.

“Europe will ultimately need some effective easing one way or another. And the tightening we have seen ultimately is likely to add to the downward pressure on European growth and inflation, and the upward pressure on European bonds,” Goldman Sachs said in a note to clients.

Against a basket of major currencies, the greenback ticked lower, on track for its biggest monthly loss since 1985.

Oil prices rose 0.5 percent to $42.59 a barrel after OPEC producers promised to keep to the cartel’s agreement to cut back production.

The March bund futures were up 42 ticks.

Natsuko Waki, Reuters 12/22/08

It sounds like retailers may be disappointed with the results of this years biggest shopping day, as there really isn’t any ‘must have’ items, and consumers are being a little tighter with their wallets.

Consumer spending as reported in the US on Tuesday slid the most in seven years last month. Another report released by the Commerce department showed business investment also tumbled last month. Orders for US durable goods fell twice as much as forecast. And spending in Europe, the UK, and Japan is also dropping. UK consumer spending dropped the most since 1995 and business investment also fell. The global slowdown has hit consumer and business confidence, encouraging them to reign in their spending. This can become a vicious cycle, as the slowdown in consumer and business spending causes the global economy to continue to slow, bringing confidence levels down even more. I expect the global slowdown to intensify, and look for a major drop in US GDP over the next few quarters.

Leaders hope to break this pattern by increasing government spending and stimulus packages. The European Union proposed $259 billion in stimulus measures and President-elect Barack Obama is pushing for another stimulus package here in the US. While I am talking about Obama, did you see he announced former Fed Reserve Chairman Paul Volcker as his main economic advisor? Both Chuck and I are fans of Mr. Volcker, but then we both figured Paulson and Bernanke were good choices also. I guess we will have to see if Volcker can resurrect another ‘magic bullet’ to get us out of this vicious cycle. Things are just about as bad as they were back in the 70’s and 80’s, but he has ‘been there, done that’. Hopefully his past experiences will help him steer the new administration in the right direction.

Chuck was watching the data print Wednesday morning, and left me these thoughts:

“New-Home Sales Sink 5.3% to Lowest Level in 17 Years U. Mich. Confidence – new low since ‘80 Chicago PMI collapses Consumer Spending Fell to 7-Year Low in October Americans’ Food Stamp Use Nears All-Time High

And can’t imagine what in the world the people that make the official call on a recession the NBER (National Bureau of Economic Research) are thinking… I called this a recession back in January, and they have yet to make the call… Amazing!

Of all that bad data, the only one that will have a good outcome in the end, is the Consumer Spending falling to a 7-year low. We’ve gone on with this spending more than we make, for far too long! Now, if we could just get the Gov’t to do the same!

And I would imagine that course of action for Consumer Spending will be staying steady Eddie for some months to come, and more and more we see +500K numbers each week on the Initial Jobless Claims… It’s going to get ugly folks… And I’m afraid that a lot of pain is going to have to be suffered before this ship gets straightened out… So, be careful out there!”

I agree with Chuck, the decline in consumer spending is actually a good thing. The only problem is that our economy depends on consumers to borrow and spend, so the belt tightening is going to really drag this slowdown out. Even if Obama convinces congress to spend another couple hundred billion, the government can’t make up for consumers who have decided to shut their wallets.

This is what happened in Japan over the past several years, as Japanese consumers stopped spending. This created a deflationary spiral as prices of consumer goods continued to fall, encouraging Japanese shoppers to just wait a while longer, as they were able to purchase goods cheaper in the future. While this helped move Japanese consumer balance sheets back into the black, it was a major drag on the Japanese economy. The BOJ fought against this deflationary spiral by bringing interest rates down to zero and holding them there for a number of years. Japan is still in a low inflation environment, and the Japanese continue to have one of the best saving rates in the world.

But I just don’t think the US consumer will stay away for too long. Sales, offers of ‘lay away’ plans, and spend now pay later programs will likely lure shoppers back into the stores. But I do believe retail sales will continue to be weaker than in the past, and the slowdown of consumer spending will continue to be a drag on the US recovery. Again, I don’t expect the US to recover for a number of years. The US slowdown will continue through 2009 and into 2010.

Chinese officials made the biggest interest rate cut in 11 years in an effort to keep their economy from slowing below their goal of 8%. The interest rate cut follows the announcement of a 4 trillion Yuan ($586 billion) stimulus package earlier this month. There have been some civil unrest and protests by unemployed workers, so this is an attempt by the Chinese leaders to get the economy moving in the right direction again.

I read a story on Bloomberg this morning which predicted China’s foreign exchange reserves would top $2 trillion for the first time later this year. China’s holdings have increased 25% this year, while those of Japan and Russia shrank. Apparently, Russia has been selling off its currency and gold assets in an attempt to prop up the ruble. China continues to build up their reserves, and the huge amount is concerning to the currency markets. China will not hesitate to use these reserves to stimulate their economy, and what currency are a majority of these reserves held? US dollars!! In order for China to put these reserves to work, they will need to sell the dollars and get the money pumped back into the Chinese economy. These reserves are a major risk for holders of US$.

Currencies today 11/28/08: A$ .6528, kiwi .5481, C$ .8073, euro 1.2766, sterling 1.5336, Swiss .8257, ISK (No Quote), rand 10.135 krone 6.9762, SEK 8.0655, forint 203.165, zloty 2.9574, koruna 19.717, yen 95.34, baht 35.53, sing 1.5108, HKD 7.7504, INR 50.10, China 6.8306, pesos 13.243, BRL 2.3274, dollar index 86.49, Oil $53.50, Silver $10.23, and Gold… $813.00

Source: Black Friday