Perfect Storm!
world's financial markets face a "perfect storm" as a combination of geopolitical and financial instability is risk aversion. first question comes from the euro area, as Spain sought to strengthen its banking system. a series of bank mergers aimed at pairing weak banks stronger, led investors to dread that, indeed, an infection of the debt crisis occurred.
Secondly, the news from Asia, North Korea, might have been responsible for the deaths of S. Korean ship heightened political tensions in the region. or not, the consequences would be remains to be seen, but North Korea is known to make empty threats, which are aimed at destabilizing the status quo.
Finally, news from China, that the secretaries Clinton Geithner and making progress with the Chinese about the revaluation of the yuan may be picking has led to even greater uncertainty in the market, as it is impossible to say that the long-term effects may be, if such actions were taken .
All this adds up to major risk aversion in the markets selloffs continued yesterday, and to security. Libor rates (the rates at which banks lend to each other) grew to levels last seen during the initial banking crisis here in the U.S. since 2008. Both Asian and European stock markets sold for an amount of 2,5-3%, and as gold and oil traded lower.
the foreign exchange market:
Aussie (AUD): Aussie lower on risk aversion. Although the economy in Australia has been strong, unwinding a tender punish Aussie drag it to the 10-month low. If China is really an attempt to slow its overheated economy, the economic situation in Australia may change dramatically for the worse.
Looney (CAD): Looney also lower this morning, taking cues from oil prices that are below. economists continue to predict a rate increase at the rate policy meeting next week, although global economic uncertainty could derail the plot. But, since the moon was beaten by risk aversion, it may really be a excellent time to get into the rate increase, which will not strengthen the currency is too much.
Kiwi (NZD): Same deal for the Kiwi risk aversion dragging it below. RBNZ said his 2-year inflation forecast, which is generally consistent with expectations.
euro (EUR): First Greece, now Spain. movement occurring in the banking system of Spain place investors on high alert, although it should be noted that Spain had not sought any help as of yet. File this under "where there is no smoke without fire" mood. At the same time, industrial orders in the euro area was higher, showing signs that they are benefitting from the weak euro. Stay with us.
pound (GBP): UK GDP came mainly in line with expectations, noting that the British economy grew 0.3% in the last quarter on the back of higher production gains seen in 4 years. Pound remains vulnerable to any problems as a result of the debt crisis of euros, but politicians BOE-maker Pozen said that the UK is at a low risk of experiencing the types of economic stagnation faced by Japan where the "lost decade".
U.S. Dollar (USD): the dollar higher, rush to the flight to quality in full. Yesterday, existing home sales went better than expected, but this was not enough to reverse the losses. Later this morning, we're going to the consumer confidence index and the cost of housing, which will show whether or not consumer recovery can take place.
Yen (JPY): Yen is the best performer this morning, as the UN and the wind carry trades has led to increased demand. In addition, the sell-off in Japanese shares also increased demand for yen as yen experience of similar proportion to its equity markets, both in the U.S.. The intensity of heat in the region in connection with North Korea, people forget that nearly a year ago, North Korea fired missiles, nuclear testing in the direction of Japan. They are a major destabilizing force in the region and the former policy of trying to appease and pacify them may go their own way. yen is quick approaching the 2010 high against the USD, slightly above 88.
I call what is happening in the market now "perfect storm" because there is fantastic uncertainty with regard to events that can not be quantified. It's one thing when there is terrible economic data by region or 2, but, when there are political threats that could potentially cause a war, then all bets are off.
And while North Korea is known to pose and bluff his position in order to obtain, this time it might be different. No one wants military action in the region, but North Korea such a wild card, nobody knows what to expect.
In addition, the restoration of peace has pretty much was due to demand from China, and they should slow down, it could affect the country that are experiencing economic growth.
Oh yeah, do not forget about potential sovereign debt contracting in Spain which could potentially be a much larger problem than what I saw with Greece.
Meanwhile, everyone rushes to the safety of the U.S. dollar and Japanese yen, and both countries government bonds, how best to earn nearly no interest, than to lose completely.
Are we pleased yet?
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