Fears about the pace of global growth, along with financial woes and central bank disappointments, have resulted in decreased interest among investors to put their capital at risk, the Financial Times this week reported. According to the publication, after Asian stocks went down by 1.2 percent, the FTSE All-World equity index decreased 0.5 percent. In the meantime, the FTSE Eurofirst has decreased 0.6 percent.
And while the markets have shown less than impressive performance, commodities are struggling to bounce back from significant declines during the previous session. Currencies, on the other hand, have proven to be relatively steadier, with the dollar index rising 0.1 percent and the euro losing nine percentage points and reaching $1.2537.
The FT explained that there are a number of factors that have contributed to sharp declines for growth-sensitive assets. And although the publication found it hard to pinpoint which factor has had the greatest impact, it said that US losses have accelerated after US investment banking and securities firm Goldman Sachs told its clients to short the US stock market. As a result, the Wall Street benchmark index lost 2.2 percent to close at 1,326.
!m(/uploads/story/164/thumbs/pic_1_inline.png)Another factor adding fuel to the New York stock fire was Moody’s downgrade of 15 of the biggest banks in the world, including Morgan Stanley, Citigroup, Bank of America and Royal Bank of Scotland. Not surprisingly, the S&P 500 opened its session last Friday in the black and has since increased 0.2 percent to 1,329.
The FT further noted that aside from stock declines, market anxiety has also been exacerbated by the subpar performance of industrial commodities. The publication explained that the commodities price index Reuters-Jefferies CRB is approaching its lowest level since 2010, ending at 28 percent lower than a little over a year ago when it hit a high.
The FT also noted that economic survey data from China, the Eurozone and the US has been unimpressive. Adding to that the weaker than anticipated US job market and home sales data, and the economic picture becomes even gloomier.
The FT said that some trading analysts still have hope that such worrisome indicators will trigger action from the Federal Reserve. But the Fed this week disappointed many with its monetary policy announcement, committing to only to an extended Operation Twist programme, which takes away from a more aggressive intervention to support assets. The FT quoted one Fed official who said he believes that too much stimulus could trigger inflation.
Perhaps nothing has taken a bigger hit by the Fed’s monetary policy than gold prices. The FT said gold traded at $1,560 for a troy ounce, having gone down 4 percent during the past week.
According to the FT, some financial experts are not losing faith, hoping that the European Central Bank may be more accommodating in the months to come, especially as many players on the market anticipate further cuts in interest rates. The FT reminded that officials from Germany, Spain, Italy and France held a summit last week to discuss the Eurozone crisis. During the meeting, the countries agreed that a €130 billion growth package is necessary to get the bloc back on its feet.
The FT also said that Italian and Spanish bond yields are well off recent highs based on hopes that the bloc’s bailout fund will provide much-needed rescue. Madrid’s 10-year benchmark yield has gone down 16 basis points at 6.45 percent, while Rome’s equivalent was off 5 basis points, reaching 5.70 percent.
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