This past week, the market just couldn't make its mind up whether to go to the Halloween Ball as Nouriel Roubini or Hank and Ben.
But this past week was really about the correlation between the foreign exchange and equity markets. The best barometers of this are the yen and the Aussie dollar as they reflect the ebb and flow (panic) of de-leveraging and worries about the stability of the global financial system.
In a nutshell, equities take fright when the yen ralles as this is a sure sign of global risk aversion on the uptick, while the AUD is the ultimate carry trade currency. Its appreciation (rise) is usually a good indicator that the market is looking to embrace a more positive outlook for stocks.
Breaking News Stories and Market Movers Yesterday
- So Japan arrives late to the global co-ordination rate cutting ball with a meager 0.20% cut (bringing rates back down to just 0.3%). But it was a drama queen 5 to 4 split decision by the Bank of Japan board with the governor casting the deciding vote. One smells more than a whiff of outside political pressure i.e. that this had been agreed at G7 / G8 level. The markets' disappointment with the result is clear. The Nikkei lurched 5% in 15 minutes and the Hang Seng went off 4%. Risk aversion should hold sway ahead of a long weekend.
- The ECB’s resident uber-hawk Axel Weber has gone all weak at the knees and warmed us up for the expected ½% cut next Thursday by saying that “if the economy cools, then rates have to come down rapidly so one doesn’t risk falling behind the curve”.
- It seems Barclays (BCS) is in line for a very expensive GBP 7.3bn capital injection from the Middle East, according to
