Markets slide on punchbowl drying up

Currencies Direct June 21st 2013 - < 1 minute read

The Federal Reserve announcement
spark a wave of selling yesterday as stocks, bonds, gold and
commodities all suffering large declines. The USD was the big
winner absorbing safe-haven inflows, but has retraced around fifty
pips overnight as futures point to small gains across risk assets
today. The markets have almost certainly overreacted to what is
essentially Ben Bernanke suggesting he will take his foot off the
accelerator if the economic case warrants it, with most markets
selling off like he had stamped on the brake. However, this selling
could last for weeks before bargain hunters feel it is the right
time to re-enter the market.

A spike in SHIBOR, the Chinese
inter-bank market where banks lend to each other, is also worrying
some in the markets and will exacerbate the current risk-off trend.
The dramatic rise in borrowing costs in Shanghai is eerily similar
to the build up to the Lehman crisis and how it unfolds will play a
large role in how the Federal Reserve proceeds going forward. If
the Chinese banking system gets into trouble all tapering bets are
off.

UK retail sales posted much better
than expected figures last month, probably due to improving weather
in what was a good day for data releases overall. Euro zone PMI
& consumer confidence and US Philly Fed and existing home sales
all posted large increases month on month and continues to paint a
slightly difference economic picture to the nervous picture the
market is currently presenting.

Today’s data includes UK government
borrowing figures in what should be quiet end to the week. This
morning the BoJ governor reaffirmed their positive outlook for the
Japanese sending the Nikkei higher and pushing the Yen back above
150 against Sterling.

Written by
Currencies Direct

Select a topic: