The British pound got off to a very bad start on Monday in the forex markets, posting a very steep decline against the US dollar and Japanese yen on news that the UK buy-to-let mortgage bank Bradford & Bingley had been nationalized by the UK government, in the latest round of financial market turmoil. The UK Treasury said on Monday morning that the B&B’s savings accounts and 200 branches were being sold to Spanish bank Santander for £612million, but the state is absorbing all the rubbish - £41billion “worth” (well, worthless) of mortgage-related assets. GBP/USD tumbled a massive 400 pips in forex trading today - the steepest daily drop in 15 years - and GBP/JPY fell a whopping 600 pips. Unbelievable shorting action! Currency traders are finding it more rational to short the British pound against these currencies, and B&B’s woes only served to worsen the sentiment on the sterling. Keep in mind that when you trade the pound, make sure you factor possible slippage into your calculations as that can be very wide even when the market moves in your favor.
Asian stock markets fell, followed by European stock indices.
Today it was announced that Wachovia (WB) was to be acquired by Citigroup (C) as it couldn’t survive on its own anymore, so that’s another big US bank knocked down. It wasn’t so long ago (only late last Thursday) that Washington Mutual (WM), US’s largest savings and loan was seized by the government and many of its assets sold at rock-bottom prices to JP Morgan (JPM).
Oh, did I mention that Fortis , partly Belgian and Dutch, is the latest to be bailed out today? It is the largest European financial institution to be bailed out as a result of the credit crisis, and it was not bailed out by one government, nor two governments, but by three governments - Belgian, Dutch and Luxembourg.
Lots of twists and turns in the financial markets right now. If you are in the market, keep a sharp eye on your risk exposure and don’t get caught in the headlights!
Economic Calendar For Tuesday:
Australia retail sales 0130 GMT
UK GDP 0830 GMT
Eurozone CPI estimate 0900 GMT
Canada GDP 1230 GMT
US S&P/Case-Shiller home index 1230 GMT
US Chicago PMI 1345 GMT
US consumer confidence 1400 GMT
Japan Tankan survey 2350 GMT