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Equities fall as markets stutter

Yesterday’s cautious note led to a pronounced sell off in the equity markets as fresh concerns over the global economy sparked a sell off. The Nikkei was down 2.5%, the Dow was 2.1% lower and the Nasdaq slumped 2.3%- the fall in the US stocks was the worst slide in a month. It seems the market is now looking for more definitive signs that the economy is improving over sentiment. Weaker regional manufacturing data did not help the markets and also the news of a protestor death in Iran spooked the markets. The USD and the YEN both made gains yesterday with GBP/USD retracing back to 1.62 and EUR/USD back to 1.3750. The USD is also under scrutiny ahead of the meeting of BRIC leaders- BRIC is an acronym that refers to the fast growing economies of Brazil, Russia, India and China. The leaders are to discuss mutual trade settlements and reserve investment in BRIC currencies. Russian PM Medvedev is calling for the creation of new reserve currencies outside the USD, at the same time Russian finance minister Alexi Kudrin said yesterday that he had confidence in the dollar and that there were no immediate plans to switch to a new reserve currency. Kremlin aide Sergei Prikhodka also noted that BRIC leaders did not intend to discuss new reserve currencies in any great depth. The practicalities of looking for an imminent switch to a new reserve currency would be difficult to achieve but it will be interesting to see if a future plan to diversify away from USD will be discussed. Naturally the USD will lose value on plans/discussion for a new reserve currency. Sterling is continuing its bull run as data this morning confirms that May CPI rose 0.6% month on month which is stronger than the forecasted 0.3% gain. Some analysts feel this may increase the chance of a rate hike from the Bank Of England, however I think low rates will be on the cards for sometime and the Bank Of England will be nervous of too much inflationary pressure. Sterling is pushing higher against the euro and the USD, however it is back under 160 against the YEN.

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