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Unconventional Wisdom
A different type of crisis
Event
The upheavals in financial markets morphed into a different form last week.
Impact
Until early September, the financial crisis was dominated by flows into safe
havens. As a result, some asset markets were remarkably stable.
But this has changed. While the capital flight into safe havens was largely
brought to an end by aggressive policy action, rising concern about global
growth took over as the main issue.
Because this is potentially more dangerous for a wider range of markets, the
pressure on policymakers to implement reflationary policies has increased
significantly. Few central banks will be able to resist the pressure to ease
monetary policy.
Analysis
Until early September, the disruption in financial markets was dominated by
massive capital flows into safe havens. The Swiss Franc and the Japanese
Yen were the currencies of choice. Gold was the favoured hard asset. Many
bond markets also benefited, with the exception of the markets of peripheral
Europe.
To some extent, the necessary policy adjustments were left to those countries
being deluged with capital inflows. Both the Swiss National Bank and the
Bank of Japan implemented policies designed to stem the rush of capital that
was inflating the values of their currencies and threatening export
competitiveness.
These policies eventually had some success and the rush into the safe haven
currencies and gold started to abate. But this was by no means the end of the
crisis, which then morphed into something a lot more serious – rising concern
about global economic growth.
One of the first signs of a change was the US$. Until early September, the
US$ had done very little. The TWI, both the total and against “other”
currencies (emerging markets) was near its low points. But this suddenly
changed and the US$ rose markedly during September.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Unconventional Wisdom
A different type of crisis
Event
The upheavals in financial markets morphed into a different form last week.
Impact
Until early September, the financial crisis was dominated by flows into safe
havens. As a result, some asset markets were remarkably stable.
But this has changed. While the capital flight into safe havens was largely
brought to an end by aggressive policy action, rising concern about global
growth took over as the main issue.
Because this is potentially more dangerous for a wider range of markets, the
pressure on policymakers to implement reflationary policies has increased
significantly. Few central banks will be able to resist the pressure to ease
monetary policy.
Analysis
Until early September, the disruption in financial markets was dominated by
massive capital flows into safe havens. The Swiss Franc and the Japanese
Yen were the currencies of choice. Gold was the favoured hard asset. Many
bond markets also benefited, with the exception of the markets of peripheral
Europe.
To some extent, the necessary policy adjustments were left to those countries
being deluged with capital inflows. Both the Swiss National Bank and the
Bank of Japan implemented policies designed to stem the rush of capital that
was inflating the values of their currencies and threatening export
competitiveness.
These policies eventually had some success and the rush into the safe haven
currencies and gold started to abate. But this was by no means the end of the
crisis, which then morphed into something a lot more serious – rising concern
about global economic growth.
One of the first signs of a change was the US$. Until early September, the
US$ had done very little. The TWI, both the total and against “other”
currencies (emerging markets) was near its low points. But this suddenly
changed and the US$ rose markedly during September.
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