The risk aversion trade is in play this morning with a myriad of factors weighing heavily on world markets. As of 9:45 EST, the US equities markets, gold, and oil are all down over 1%. As to be expected, there is US dollar (USD) strength, up against all but the strongest currency this AM, the Japanese yen (JPY).
This should come as no surprise to anyone who follow this blog as we speak of this trade quite often. So what’s going on to spoke the markets?
Well, its a confluence of events. Without going into too much detail now– I’m going to do a detailed piece later– here’s a breakdown of whats going on:
1. Bernanke signals that he’s going to maintain low interest rates for an “extended period of time”, despite the markets guess that last week non-farm payrolls would suggest otherwise.
2. The Japanese announced an $80 billion stimulus program to try to ward off deflation and jump start their economy.
3. A Moody’s report suggests that the UK should reduce their deficit. Could be foreshadowing a ratings drop. The British pound (GBP) is the biggest loser this AM, down 2.15% vs. JPY and 1% vs. USD.
4. Bank of Canada leaves overnight lending rate unchanged at .25%. Says US dollar weakness may impact their growth. Canadian dollar (CAD) down across the board.
So, its no wonder that world markets are jittery. Until central bankers and government officials can make coordinated decisions to help stabilize the world economy, expect an increase in risk and thus volatility. Going into year end, many markets that have had large gains this year may be poised for a bit of a sell-off.
Some have deemed some of these moves as having come “too far, too fast”, and geo-political uncertainty could fuel a flight to safety.
Stay tuned and check back later to see how this day plays out!
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