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Japan’s gross domestic product (GDP) achieved the first growth in five quarters in the Q-2, indicating that the world’s second largest economy has climbed out of recession. According to a preliminary report released by the cabinet office Monday, the Japanese economy grew by an annualized 3.7% in real terms in the April-June period, the first rise since the Q-3 Y 2008 when Japan, along with the 15-nation Euro-zone, sank into its first recession in seven years as the global financial crisis took a heavy toll on the world’s second largest economy and curbed demand for its exports.. The expansion in GDP, which was lifted by consumer and government spending, came following a revised annualized 11.7% plunge in the previous quarter and a revised 13.1% dive in the October-December quarter of 2008. On a quarter-on-quarter basis, the economy rose 0.9% in the Q-2, said the office in a preliminary report. Meanwhile, consumer spending was up 0.8%quarter-on-quarter in real terms while corporate capital spending dipped 4.3 percent, according to the report. Public investment jumped 8.1% , pushed by the government’s fiscal stimulus packages to fight the recession, compared with a 9.5% fall in housing investment.

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Only one week after the US$ hit its lowest level for 10 months, the main talking point in FX markets is whether the US currency is about to strengthen. The change of sentiment has been sparked by last week’s US payrolls report, which saw far fewer job losses in July than expected. This strengthened the view that the US is past the worst of its recession and that its economic recovery could precede that of Europe and Japan. Some traders are hesitant to call an end to the trend of US$ weakness, given that the currency’s rebound has been based on its reaction to a single piece of economic data, but if the US$ does continue to rise, it would mark a very significant development given the pattern of trading that has tended to characterize the currency markets since the onset of the financial crisis. This has seen the US$ benefit from haven demand when equities, and hence risk appetite, have fallen. In contrast, the US$ has lost ground when stocks and investor confidence have risen as investors abandon the relative safety of the US currency in search of higher returns elsewhere.

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As regular readers would know DRYS is has been one of my favorites for some time, both myself and Paul have published a number of research articles on this one including a report on how DRYS was trading well behind the Baltic Index. DRYS and GE marked our financial services divisions first “house trades” over the last few months and Buzz Inc has good sized positions in both.

DryShips Inc reported better than expected quarterly earnings, helped by the recent rise in spot charter rates that the Baltic Index indicated 2 months ago. Drys also seen an increased contribution from its offshore drilling segment. Read more

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For the first time since last March due to safe haven buying. Silver and platinum also rallied. Gold price for April delivery went up US$25.70oz or 2.6%, to settle at US$1,002.20 oz. hitting US$1,007.70 on the day. March Silver closed at US$14.49 oz +. 555 pennies. April platinum rose US$19.20 to 1,095.70 oz. Gold’s hedge appeal was strengthened as US stock market tanked.

The DJIA continued to decline sharply on Friday after closing Thursday at its lowest level since 2002. Markets in Germany, France, the U.K. and Japan also dropped, and investors flocked to precious metals as a safe haven amid tumbling stock markets. US$ vs. the Euro went down sharply on Friday after trading up for several trading days, erasing most of this week’s gains helping Gold to top US$1,000 oz.

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U.S. consumer confidence slipped to a record low in January, and governments around the world offered further help to banks and industries battered by the global financial crisis. U.S. industry group Conference Board said its sentiment index fell to 37.7 from a revised 38.6 in December, confounding forecasts for a small uptick after Europe’s biggest economy, Germany, showed a surprise rise in business sentiment.

Japan and Britain widened their efforts to help industries hurt by slowing economies, with the UK offering loan guarantees for automakers, while sources said Russia was preparing more support for banks. Japan enacted a US$53B extra budget and said it would offer a lifeline to the small- and medium-sized companies at the heart of the world’s second-largest economy with a US$16.7B fund to buy stakes. Britain announced it would guarantee up to 2.3B pounds (US$3.25B) of loans to the car industry, much of which is foreign-owned, including Ford Motor Co, Honda Motor Co and Nissan Motor Co..France and Italy are also planning aid while Germany and the United States have already announced plans to support automakers. In Russia, sources told Reuters that the government was set to help top bank Sberbank and other lenders with a second bailout package worth more than $27 billion.

One government source said Russia planned to offer Sberbank a 500B roubles subordinated loan. Last week, US Secretary of the Treasury, Timothy Geithner set to work overhauling a US$700B program to rescue the world’s largest economy from the worst financial crisis since the Great Depression. He is expected to propose new steps to unclog credit markets in the next two weeks. Canada’s budget and stimulus package will include incentives for home renovations and a promise of relief for credit card borrowers as well as tax breaks for middle- and lower-income Canadians, the Globe and Mail newspaper reporter.

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There’s no denying the strength of the Chinese economy now. Last week, it was announced that the size of the Chinese economy has now surpassed one of the biggest economies in the world; Germany.
After China’s revised GDP numbers were released, it became official that China has overtaken Germany as the world’s 3rd largest economy.

For 2007, China’s nominal GDP rate registered 13%, while its GDP totaled 25.73T Yuan. On the other hand, Germany’s 2007 GDP was only $$3.32T.

This is another example of how China’s economic growth is outpacing most countries during these tough economic times.

Countries like Germany have taken a huge hit in the current financial and economic environment. In fact, the weakening demand for Germany’s exports (it’s one of the largest exporters in the world) continues to weigh heavily on the German economy, and that’s a trend I expect to continue throughout 2009.

There are only two economies standing in China’s way from becoming the world’s largest economy, they are the USA and Japan. Do not be surprised to see China charge pas Japan in the next three to four years as Japan is burdened with a deep recession due to its aging population and lack of jobs for younger Japanese workers.

Further, expect to see Germany and Japan’s economies remain soft and slugish in the coming months and years.

China’s economic strength and size are solid reasons why investors are continuing to focus on China now.

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