Weekly Financial Markets Analysis by Lloyds TSB

Heightened risk aversion prompted very sharp swings across financial markets this week, leading to a series of official measures to calm the turmoil.

Heightened risk aversion prompted very sharp swings across financial markets this week, leading to a series of official measures to calm the turmoil. Although the spotlight centred on equity markets, the heart of the uncertainty continued to emanate from the credit markets.

A surprise co-ordinated interest rate cut by major central banks, including the Fed, ECB and BoE, provided little, if any relief. In forex markets, the yen posted its strongest gains for a decade this week, as rising risk aversion saw carry trades scaled back. $/Y dipped to 97.92 and €/Y to 132.83, before paring falls. The biggest declines
were in high-yielding and emerging market currencies, led by the Australian and New Zealand dollars, Mexican peso, Brazilian real, South African rand and Turkish lira. Safe haven flows saw the price of gold push through $900, however crude oil fell below $80 for the first time in a year as most commodities remained under selling
pressure. The US dollar extended gains versus the majority of its main counterparts this week, including pushing to 1.3478 against the euro and 1.7041 against the pound. Intra-week lows were at 1.3444 and 1.6796, respectively.

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