Risk aversion was the order of the day yesterday and this morning there’s more of the same. Without the US markets being open volumes were understandably thin (especially since the LSE was down for half the day!) and today will unlikely see volumes get any better with a half day across the pond. The Americans don’t like it when there’s a big move in the markets and they’re not a part of it. With the period just before and after Thanksgiving historically seeing gains for indices it won’t come as much of a surprise if all the woes that emerged yesterday causing a sell off in global markets weren’t brushed under the carpet and we reversed the losses next week.
Last night the FTSE was sitting tentatively on its 50 day moving average and this morning further weakness means we’re now below it and things are still looking shaky. When ever there’s a little fear and uncertainty in the markets the losses compound and for now we’re seeing investors run for cover. This morning sees risky assets getting a hammering once again, but at least the FTSE is some 50 points higher now at 5150 than when we were calling it just before the open.
Dubai’s troubles have been gradually building and this could be just the tip of the iceberg for them and other countries whose debt situation is in doubt. For Dubai, the last four years has seen the most extraordinary development of one of the largest cities in the Middle East, built in the middle of a desert. Ever since the bottom fell out of the commercial property market, which makes up a much larger percentage of Dubai’s revenue than oil, the emirate was always going to feel the pinch. With its reliance on financial services, tourism, real estate and construction (although the real estate and construction contributions have declined somewhat recently!) it has suffered a double whammy as a result of the credit crunch. When you see the enormous ski slope that sits in a huge cocoon keeping the temperature at -3 degrees and hear that they plan to build a full sized downhill ski slope so they can host the winter Olympics, you start to wonder just how such a fantasy land can actually exist. It may come to its smaller but much richer brother Abu Dhabi to bail it out once again.
The dollar took a thumping yesterday with some major support levels being given up and that selling continued overnight. But there’s a risk that with some Americans being back at their desk today they may cause a snap back, if not today, then possibly next week. In fact we are already seeing a little bear squeeze with some support for the dollar this morning and dollar/yen is back above 86.00 having hit a low of 84.81 late last night.
Intervention from the Japanese is becoming more and more likely as the Yen’s appreciation continues cause damage to their big exporters. The Swiss central bank has become quite active recently selling francs to prevent further gains against the euro. The result is further weakness for the Nikkei which as substantially underperformed in the last couple of months.
The euro and sterling are taking a knock too, with sterling being the strongest out of the two. Cable’s trading range remains in tack with the cross now reverting back to the downside and testing support levels.
The volatility in markets, particularly FX, has really picked up in the last 24 hours so clients should beware of sharp moves. Overnight, there was serious activity in the currencies as any Asian markets that were open saw investors scrambling for an exit.
Gold has had its biggest one day fall of the year so far today and this has always been the risk following its relentless climb higher. Now back at 1150.0 clients have been dipping back in, but in small sizes as such a correction can easily be followed by another move to the downside. With a low of 1137.4 so far today bears will be targeting 1130.0 next.
For the remainder of the day things might just calm down after this initial flurry of activity, but the last 24 hours has been a sharp reminder that the markets can turn with the blink of an eye.