Risk aversion continues to dominate the markets as the US dollar raced to a six-week high against the other major currencies on Monday as nervous investors switched out of high yielding riskier assets. The pound fell by over 1% against the US dollar and the euro but reached a 7 month high on the high yielding New Zealand dollar and a 4 week high on the even higher yielding Australian dollar.
Global economic worries continue to shatter market confidence with all the major global stock markets falling heavily at the start of the trading week. The CAC in Paris and the DAX in Frankfurt both fell by over 3% and London FTSE100 index by 2.6% to record its 6th straight day of losses.
In the US, the bipartisan US congressional super committee confirmed fears at it failed to agree on cuts to the record federal budget deficit with the Democrats wanting to focus on tax cuts and the Republicans focusing instead on spending cuts.
In the beleaguered euro zone, credit ratings agency Moody’s warned France that it risks losing its AAA credit rating as its borrowing costs rise in the bond markets. Meanwhile, the yield on Spanish bonds continued to rise after the centre right opposition Popular Party under Mariano Rajoy won a massive parliamentary majority in the Spanish elections held on Sunday. Rajoy is expected to push through reforms to try and steer the country away from the engulfing debt crisis.
Figures released yesterday showed the European Central Bank (ECB) put aside its reported reluctance to be perceived as a lender of last resort last week in increasing its purchases of public debt last week.
The ECB purchased a total of €7.99 billion of peripheral sovereign debt in the week-ending November 18th, compared with just €4.48 billion in the prior week increasing the value of its debt holdings to a total of €194.5 billion.
UK data continues to paint a gloomy picture with property website Rightmove reporting that UK home sellers cut asking prices by the most in a year in November due to increased uncertainty regarding the outlook for the euro zone. It said average asking prices in England and Wales fell 3.1% from October, to £232,144, the biggest single monthly drop since November 2010.
According to Miles Shipside, commercial director at the property web-site, “Markets dislike uncertainty, and so do people who are deciding whether or not to enter the property market.”
All 10 regions in England and Wales tracked by Rightmove showed falling prices in November, the first time that happened in more than three years. This on the day that the coalition government announced a new scheme to help first time buyers get on to the property market.
The project will see the government underwrite part of a mortgage offer so people can borrow up to 95% of the value of their new home. This lack of mortgage availability has been a major headache for house-builders who have had to target their developments at the higher end of the market. In 2009-2010, the number of new properties being built dropped by 23% on the previous year as the impact of the 2008 financial crisis kicked in. Last year the numbers dropped a further 6%.
Today’s move to add liquidity to the mortgage market is to be backed up by a “Get Britain Building Fund” under which building companies will be allowed to bid for public money to finish projects that have stalled due to lack of funding.
