Financial Markets Review by Lloyds TSB

Rising fears saw risk appetite retrench this week, pushing equities and benchmark bond yields to multi-year lows.

Rising fears saw risk appetite retrench this week, pushing equities and benchmark bond yields to multi-year lows. The bearish sentiment was reflected in currency markets by another solid week for the yen, which rose to a 3-week high against the US$ (93.57), in spite of data
showing the Japanese economy in recession for the first time since 2001. In contrast, the biggest G10 fallers were the high yielding Australian and NZ dollars, prompting the RBA to intervene and purchase its own currency as it tested recent lows. Overall, the US$ had another solid week, with the dollar index – its average value
against six major world currencies, rising to the highest since April 2006 (88.46). Within this, £/$ eased 0.3% on the week to 1.4784, while €/$ fell 1.4% to 1.2519. The SNB surprisingly cut its target rate by a record 1% this week, reducing it to just 1%, from 2.75% at the start of October. The franc fell to its lowest against the US$ since
August 2007 (1.2298), while €/CHF briefly rallied through 1.54. However, the biggest falls this week were again in emerging market currencies, led by the Brazilian real and Mexican peso, as risk aversion spiked up. It may in part have also reflected further selling pressure on commodities, with crude oil falling below $50 for the first time since May 2005. However, gold prices rose for a third
straight week.

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