A Financial Armageddon

Distraught faces covered the trading floors worldwide yesterday as global stock markets crashed because of concerns the lingering debt crisis will hamper the economic recovery. Investors ran scared fleeing into safe haven assets; or should I say asset, as it appears the only commodity rapidly increasing in price is gold. The shiny treasure will now look to yield you roughly $1,660 an ounce as investors used bullion to shelter themselves from the monsoon engulfing the financial markets. Don’t be surprised to see more of the same going forward.

Pound Sterling – UK Markets

It would be hard for the UK to maintain the recent steady run we have been enjoying whilst markets are as they are at present. However, whilst there were negative reactions to yesterday’s events I will begin on a positive. The Halifax reported that UK house prices have gone up for the third month in a row. Latest data has revealed that they rose by 0.3 percent in July, but this still leaves them 2.6 percent lower than the same time last year. The average cost of a home in the UK now stands at £163,981. There were no unwanted surprises on the interest rate front as the Bank of England Monetary Policy Committee voted to hold rates at 0.5 percent. In fact, the news went almost unnoticed with RBS now reporting a half year loss after taking a £733 million provision for its exposure to Greek government bonds. The majority tax payer owned bank reported losses of £1.4 billion for the 6 months leading up to 30th June. Despite this, sterling, for once has held firm and continues to make gains against the euro.

US Dollar – US Markets

Traders would have been dreading coming into work today as nonfarm payrolls data was due to be released. This is a key indicator for the US jobs market and if reports suggested that we were to expect to see 85,000 new jobs added in the economy. This would have come as a further blow for the hampered economy as June’s figures revealed that only 18,000 jobs were added that month. However, July’s nonfarm data showed that 117,000 new jobs were added, smashing original expectations. Following the announcement to raise the debt ceiling the US economy has been scarred by poor growth forecasts. There was certainly an anxious wait leading up to the nonfarm payroll announcement which was at GMT 13:30 today.

Euro – European Markets

European Commission president Jose Manuel Barroso launched a scathing attack on European leaders yesterday stating that direct action was required rather than “undisciplined communication”. He stated that the eurozones current €440 billion bailout fund needs to be increased by €1 trillion to shore up investor confidence and allow the ECB to make sufficient bond purchases. However, this move would undoubtedly enrage taxpayers in core European nations such as Germany. Perhaps his most bold view was that the debt crisis is no longer a problem for just the periphery nations. Contagion into the core nations is now a strong possibility. Even Trichet, who’s aura usually calms the markets failed to ease investor fears yesterday after announcing the ECB will return to its bond buying programme. However, with Italy and Spain at the forefront of ever increasing concerns over their bond yields, the ECB is now believed to be purchasing Portuguese and Irish bonds; a strange manoeuvre given the concerns surrounding a core G8 nation such as Italy. Don’t be surprised to see the euro struggle going forward – there may even be a few tears shed as investors see their profits dwindle.

Other Currencies – Highlights

Given its ongoing performance in the markets you will be surprised to hear that the Swiss Franc has weakened following an announcement from Swiss National Bank President Philipp Hildebrand. He has labeled the currencies strength as “absurd” and has failed to exclude the bank taking “further measures” to curb its advance. The Japanese government in their continued efforts to de-value the currency have urged investors to steer clear of the Yen. This comes as no surprise seeing as the nations is still aiming to recover following the devastating earthquake and tsunami that crippled the economy in March. Whilst the Yen clawed back some losses today, traders view further losses going forward.