Daily Market Reports | Jun 23 2009
By Rudi Filapek-Vandyck
Risk aversion trades returned with a vengance overnight with commodities, commodity-linked currencies and equities all taking a bath. European markets fell 2.5%, while the Dow had its largest fall both in absolute terms as in percentage terms since April 20.
At the closing bell the Dow had lost 200 points, marking a loss of 2.4%. The S&P500 index, poised to register a Golden Cross sometime this week, lost 3.1% and the Nasdaq fell 3.4%.
In line with all of the above, SPI futures are indicating this morning the Australian share market is likely to open more than 2% lower than where it closed yesterday.
The carnage was most felt in energy and resources markets with LME copper falling 5.4%, aluminium dropping 6.3% and nickel weakening 4.6%. WTI oil futures fell US$2.62 to US$66.93, gold fell US$13.50 to US$922.70. US bond yields fell with 2s at 1.12% (-7); 10s at 3.68% (-10).
The Aussie dollar is seen trading at US$0.7866 this morning. The currency had an overnight high of 0.8010 and a low of 0.7850. The latter is eerily close to where the currency is at right now. FX specialists at National Australia Bank believe the Aussie is likely to trade between 0.7810-0.7910 today.
Even though the revision of world growth forecasts by the World Bank was well-flagged in advance, media reports are still pointing in the direction of yesterday’s official release as the main culprit behind last night’s return of risk aversion in global financial markets. The World Bank revised down its forecast for 2009 world growth from a negative 1.7% to a negative 2.9%. The forecast for 2010 was lowered to a positive 2% (down from 2.3% previously)
As readers probably would have guessed already, the USD was well-supported in FX markets. The broad USD Index is trading back above 80.8 while the JPY also gained on the World Bank news, grinding back below USD/JPY96. GBP fell below GBP/USD1.6350 while EUR struggled despite good news from the German IFO business confidence survey.
Soft commodities had a terrible session too.
Apart from the overall return of risk aversion, investors are likely to remain on the look-out for the Euro-zone preliminary PMIs for June, to be released later today. The indices have recovered somewhat over recent months and further improvement is forecast for June. Also, the OECD is to publish its latest Economic Outlook including its updated forecasts for OECD economies.
It’ll be interesting to see whether the OECD forecasts fall in line with those at the World Bank.
See also this week’s Weekly Insights, emailed to all paying subscribers yesterday. The core of the email will appear as a regular news story on our service on Wednesday morning. On Thursday it will be sent out as an email to non-paying members at FNArena.
Greg Peel is in bed with the flu today.
