Despite beating the clock on an almighty increase of the US debt ceiling, a historic event took place over the weekend. For the first time ever, North America’s credit rating has been downgraded by ratings agency Standard and Poor. This has only compounded concerns over the world’s biggest economy as well as the overall global outlook. Asian markets are likely to be the first to slide following this as the majority of their export industry is funded by the US. Falls in spending and a lack of investor confidence are likely to follow…
Pound Sterling – UK Markets
The UK, despite all its flaws, stagnant growth prospects and a market that is as twitchy as expectant father is not as vulnerable as many think. Whilst ongoing debt restructuring measures in the US and eurozone are turning markets on their heads, measures that the UK government put in place appear to be keeping us afloat. We could all sit here and slam every bit of negative data the makes its way out of the economy but the bottom line is, our austerity measures, whilst slow and gruelling, are manageable. Now, the markets aren’t stating that we are the perfect model, but in times where there are very few safe haven assets, some are calling the UK one of the few around. Mind you, that’s perhaps not so difficult given the state of our two major counterparts at present; and Sterling, despite our best efforts to keep affordable, appears to be making slow but steady headway across the board.
US Dollar – US Markets
Despite being downgraded and facing a gloomy outlook over the weekend, the US has bounced back with unemployment figures that were down in July. The global economy created 117,000 new jobs last month, which was a better than expected outcome for the much under fire economy. Retrospectively though, the unemployment rate fell to 9.1 percent from the 9.2 percent that was recorded in June. President Barack Obama did his best to buoy the nation highlighting the benefits surrounding this announcement. However, this will do little to stem the fire that is ripping its way through markets, both nationally and internationally.
Euro – European Markets
The European Central Bank, bullied by investors worldwide have intimated that they intend to begin purchasing Italian and Spanish bonds. In other words, they will purchase government debt. Whether or not this is a plaster over a wound that actually needs stitching, we are yet to find out. However, following the announcement, yields on Spanish and Italian government bonds improved significantly after the concerns of the previous week. Both nations saw falls in bonds, dropping from above the 6 percent mark to the early fives. There are still concerns that long term, both nations will be unable to afford loan repayments and investors remain sceptical as they would like to see countries reduce their levels of debt by spending less and raising more revenues; not borrowing.
Other Currencies – Highlights
In a time where investors are sweating over where to place their cash, commodity currencies, having been well known safe haven currencies in the past are taking a hit. The Swiss Franc, a recent power house in the world market has been rocked after the Swiss National Bank unexpectedly cut interest rates in an attempt to stem recent gains. So, the question remains, where do you put your money?
Following this, the Australian and New Zealand Dollar both continued to fall as concern continues to mount over the struggling global economy sapped demand for higher-yielding assets. The Aussie even managed to take its run of daily declines against the US Dollar to the longest in a decade.