Global stock markets have been ravaged as investors risk appetite slumps further. The stock market in Tokyo has fallen by the greatest amount for 40 years with the Nikkei now down 10.55%. This has sparked a sell off in every other major stock index, with the Dow and the S&P 500 both declining over 1.5% and the FTSE down 1.4% in trade at the close this afternoon. The markets are arguably the most risk averse we have ever seen as investors contine to struggle to cope with their trading decisions amidst such phenomonal uncertainty.
Risk sensitive currencies such as the safe haven Swiss Franc and Japanese Yen have strenthened in excess of 1.4% in trade today. The GBP/CHF pair reached 1.4738 in trade this afternoon and the GBP/EUR pair hit lows of 1.1498. The Euro has benefited from the risk averse environment yet has also gained on news that leaders have agreed to expand the region’s rescue fund.
The Bank of Japan has pumped a record $15 trillion Yen into the financial system in an attempt to shield their financial system from an ongoing fallout this week, yet it would seem that there is nothing that they can do as the world’s traders now focus their attention on their markets. It is likely that problems will persist this week as the actual damage and subsequent aftershocks are appreciated on a daily basis.
A number of US companies including General Electric (GE) have suffered ill fate as countries such as China and India are forced to rethink plans for atomic energy amid safety concerns generated by recent media images. The currency markets are very much affected by these events and risk appetite is likely to dominate movements in all risk sensitive pairs. The outlook for the week ahead is more uncertain than usual with a busy economic schedule due for release in addition to regular news on Japan and tensions in the Middle East.
Despite the improved outlook for the US economy in Q1 this year we would expect cautious optimism and no indication of any changes to interest rate policy at least until the end of 2011 from the Fed. From the US we also have Industrial Production, Manufacturing ISM and CPI figures to contribute towards price action this week.
The Euro is unlikely to gain much further as the re-emergence of sovereign debt risk is expected to weigh on the single currency. We would hold a contrarian view on the Euro and expect the GBP/EUR to trend back towards the 30DMA in the 1.17’s.
The main point of interest from the UK tomorrow, ahead of the BoE minutes and the budget on the 23rd March 2011 is the labour market report and DCLG house price figures. Markets will undoubtedly focus most of their attention on the ongoing Japanese crisis and continue to trade on a ‘risk bias’ as the situation plays out.
