The turmoil in worldwide stock markets continues.
For the first time in the 27 year history of the FTSE-100 index in London has registered four consecutive days of 100+ point losses.
The authorities are trying to stabilise the markets with the European Central Bank (ECB) stepping into the bond markets again to ensure “price stability” in the euro zone by buying Spanish and Italian bonds thus temporarily giving the euro some reprieve, but the euro later headed lower as worries about the debt crisis resumed.
Recent sharp increases in Italian and Spanish bonds ignited fears that countries will be engulfed in the European debt crisis.
Meanwhile, the G7 group of industrialised nations announced early on Monday morning that it intends to support market liquidity, “affirming our commitment to take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.”
“We reaffirmed our shared interest in a strong and stable international financial system, and our support for market-determined exchange rates. Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will consult closely in regard to actions in exchange markets and will cooperate as appropriate.”
However, the statement failed to calm investors in Asia with the Nikkei tumbled 2.18% overnight. A shift from equities into safe-haven commodities saw the gold price climb to a record $1,715 per ounce.
The news follows the Friday’s downgrade of the US debt rating by ratings agency Standard & Poor’s (S&P). The country´s debt is now rated AA+, down one notch from AAA.
S&P said that the incapacity of Congress to work together, the now lesser likelihood that the 2001 and 2003 tax cuts for high-earners will be allowed to expire from 2013 onwards, and the recent downward revisions to growth estimates were determining factors in its decision.
The result?
So called safe haven currencies like the yen, Swiss franc and the US dollar started the week on a firm footing as the reality of the US AAA rating downgrade set in while the euro fell sharply.
The high yielding risk sensitive currencies like the Australian, New Zealand and Canadian dollars and South African rand were abandoned.
The pound has benefited against the euro and the high yielding currencies as a result of market turmoil to register multi month highs but today will produce a raft of UK economic data and when the market turmoil subsides and the markets go back to judge currencies on economic fundamentals, there is then every chance that the pound will then lose some if not all of the ground made up in the last mad 10 days!
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
