Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Explaining Yesterday's Mega-RallyMany people may still be a little puzzled by the impressive surge on Wall Street yesterday, despite the clear preopnderance of gloomy news (though taking into account the near-certainty of a big Fed cut today). The answer involves the yen carry trade, about which we posted a couple of items last weekend. Today's Financial Times takes up yesterday's story:Overview: Relief-rally but worldwide uncertainties persist By Dave Shellock in London and Michael Mackenziein New York Tuesday Oct 28 2008 16:30 Global equities staged a big rebound led by Asian and US markets as a sharp fall in the Japanese yen infused bargain-hunting for risky assets and offset grim US economic data. The improvement in investor risk appetite also extended to emerging market assets - which have come under severe pressure lately - as the yen registered sharp declines against its leading rivals amid talk of currency intervention and even a possible rate cut by the Bank of Japan. Ashraf Laidi, chief currency strategist at CMC Markets, said: "Yen-selling intervention would not be successful as long as Japan does not cut interest rates." Read the rest of the article Trying to jumpstart carry trades when a lot of emerging markets are still experiencing exceptional currency volatility is risky. Accordingly, the FT noted a just today: Yen rallies as growth fears return By Peter Garnham Wednesday Oct 29 2008 06:45 The turmoil on global currency markets continued on Wednesday as the yen advanced amid fears over a global economic slowdown. The yen's rally erased some of its losses during a volatile trading session on Tuesday. Maurice Pomery at IDEAGlobal said predicting moves on the currency market was close to impossible amid a lack of liquidity and increasingly volatile price action. Read the rest of the article Right now, Wall Street is pretty much flat. The Fed will cut later in the day, and China has already done so, so there may be a continued upside. But, to quote the latter article again, from Maurice Pomery, "Expect the unexpected and we see wild swings through this week continuing," Labels: currencies, Emerging markets, financial crisis, Financial Times, stock markets, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
