Currency trading leads the way in risk aversion

الحقيقة الضائعة · 21-04-2009, 02:17 AM

Overview: Currency trading leads the way in risk aversion
By Michael Mackenzie in New York
Published: April 20 2009 18:15 |

Currency trading led the way in risk aversion as the yen surged, particularly against the euro, sterling, and the Australian dollar.

“While much has been said about flows in currency markets being dictated by the swings of risk appetite in equities, currencies are increasingly leading the shifts in equity indices,” said Ashraf Laidi, chief market strategist at CMC Markets.

“Yen strength emerges throughout the currency universe on falling risk appetite, concerns about US earnings and the implications of the looming release of stress tests for US banks.”

The surge in bank shares during the past six weeks went into reverse on Monday, with investors rattled by rising credit costs for the large banks.

After Asian shares closed mainly higher, equity markets in Europe and the US shifted sharply lower, hurt by earnings worries, while broker down*****s hit property stocks in the UK.

Since the lows of early March, global equity markets have rebounded sharply and this has ignited a debate as to whether the move is simply a bear market rally or evidence of an economic recovery still to come this year.

“If, after the middle of May, equity markets continue to go up, then the bear market will be over,” said analysts at Société Générale. “It would appear that as far as the MSCI World index is concerned, ‘sell in May and go away’ has only been appropriate for bear markets.”

At the end of last week, US equities had posted their biggest six-week rally since 1938, with a rise of nearly 30 per cent. Traders say a pull-back in prices is natural as some investors seek to rebalance their portfolios.

“People who didn’t get out of the market the first time are selling now,” said Anthony Conroy, head of trading at BNY ConvergEx. “It’s the second wave and after a 30 per cent rally since March, we could get a pullback of 10 per cent.”

In New York, the S&P 500 closed down 4.3 per cent, with bearish sentiment overwhelming earnings from the likes of Bank of America, which beat estimates, and deal activity led by Oracle buying Sun Microsystems and PepsiCo purchasing bottling plants.

Investors took in their stride news that March leading indicators fell 0.3 per cent, slightly worse than an expected decline of 0.2 per cent

In Europe, the FTSE Eurofirst 300 index closed 3.5 per cent lower, and in London the FTSE 100 dropped 2.5 per cent as investors also awaited the UK Budget on Wednesday.

On Monday, the CBI employers’ body said that, ****d on its forecasts, the bulk of the UK recession had already past but a recovery was not expected to begin until the spring of 2010.

Ian McCafferty, chief CBI economist, said: “The rate of contraction will moderate quite noticeably from the second quarter of this year.” But he forecast that 2010 would see at best a fragile recovery that would not produce growth strong enough to reduce unemployment.

In Tokyo, the Nikkei 225 index closed 0.2 per cent higher and the broader Topix gained 0.3 per cent. Hong Kong rose 1 per cent, while Chinese shares were boosted to their highest close since the Olympics, when Wen Jiabao, China premier, said the economy was turning a corner as a result of stimulus efforts

The Shanghai Composite index gained 2.1 per cent, boosted by banks.

As equities faltered, government bonds attracted buying. The US 10-year Treasury note yield dropped eight basis points to 2.85 per cent. In the UK, the 10-year Gilt yield dipped 14bp to 3.21 per cent, while the 10-year Bund yield fell 12bp to 3.15 per cent.

In emerging markets, bond yields weakened against US Treasuries, with the EMBI+ rising 19bp to 564bp. Mexico’s 10-year yield rose 11bp to 5.84 per cent.

Among commodities, gold rallied, but **** metals fell and US crude oil tumbled $4.45 to settle at $45.88 a barrel amid fears of elevated US inventories and weak demand.

http://www.ft.com/cms/s/0/7957836c-2...nclick_check=1

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