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Weak Dollar Rattles Equity Markets

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European stock markets resumed their slide at the open on Friday, following steep falls overnight on Asian and US markets, and the dollar hit fresh lows against the euro and the yen ahead of a crucial US monthly jobs report.

Credit indices rose to record highs as news that another leveraged fund failed to meet margin calls sent renewed jitters through the debt markets.

Nervy trading hits London stocks - Mar-07Credit worries batter Asian stocks - Mar-07US stocks plummet amid credit woes - Mar-06Gillian Tett: Vicious spiral haunts debt markets - Mar-06The Short View: US markets - Mar-06Lex: US retail sales - Mar-06The fading fortunes of the dollar contributed to upward pressure on commodity prices. Crude oil neared $106 a barrel, while gold remained close to its record high of $991.90.

The fresh fall on the world’s equity markets came as investors prepared for the most closely watched American economic data of the week.

Due out at 1.30pm GMT, the consensus forecast for the monthly non-farm payrolls report is that 40,000 jobs were created outside the agricultural sector in February. This follows a decline of 17,000 in January but predictions for the highly volatile indicator vary wildly. The 23,000 jobs decline in the Automatic Data Processing report, which measures job creation in US private-sector jobs market, on Wednesday led to some economists dropping their forecasts.

“We continue to expect that the payroll figures will show employment unchanged in February,” said Paul Ashworth at Capital Economics. “The consensus forecast is currently for a 25,000 increase, but will no doubt come down in the wake of [Wednesday’s] ADP report.”

London’s FTSE 100 started the session 1 per cent lower at 5,709.8, a loss of 56 points, and adding to the 87 points lost during the previous session.

Continental European bourses also lost ground rapidly. The Xetra Dax 30 in Frankfurt fell 1.1 per cent to 6,520.4, while the CAC 40 in Paris fell 0.9 per cent to 4,634.6. Overall, the FTSE Eurofirst 300 was 1.1 per cent lower at 1,269.2.

Wall Street stocks plummeted as an onslaught of bad news in the housing, mortgage and credit markets rattled traders.

The benchmark S&P 500 index broke through the key technical resistance level of 1,310, falling 2.2 per cent to 1,304.35, the lowest close since September 2006.

The heavy selling in New York spread to Asian exchanges, with financial stocks hit hardest on worries about renewed problems on credit markets with the prospect of recession in the US looming ever larger. The Nikkei 225 fell 2.9 per cent to 12,836.82, while the broader Topix was down 2.6 per cent at 1,254.56.

The weakening dollar continued to dictate the pace of much of the selling pattern. It hit new lows against the euro and the Swiss franc and a 3-year low of 102.45 against the yen. The euro reached $1.5396, its most valuable level since its 1999 inception, and the Swiss franc rose to SFr1.0206 down from SFr1.0227 in the previous session.

“There’s little respite around for the dollar as the week’s final session gets underway and with the key non-farm payroll reading due later in the session, the scope for further volatility in the greenback cannot be overlooked.” said James Hughes, analyst at CMC Markets.

Shares in Carlyle Capital Corp, which is listed in Amsterdam last year, were halted after the fund said it had received substantial additional margin calls and default notices from its lenders.

The highly leveraged- fund, which has been hit by a fall in the value of its $21.7bn portfolio of AAA-rated residential mortgage-backed securities, said in a statement on Friday that additional margin calls from its banks and increased collateral requirements could quickly deplete its liquidity and impair its capital.

Worries about defaults sent the cost of insuring European company debt against default to new highs. The iTraxx Crossover index, which is made up of mostly 50 junk-rated bonds, hit a fresh record of 651 basis points, 30 basis points wider than the previous session.

The investment-grade iTraxx Europe index was at 156 basis points, about 11 basis points wider and also a fresh wide level.

In the government debt market the yield on the 10-year bund fell below 3.75 per cent for the first time since December 2006. Bund yields have widened agianst other eurozone debt in recent weeks as risk averse investors have sought the safety of the liquid German debt market. On Friday, the spread between the Greek 10-year bond yield and the bund widened to its widest level in over 8 years.

In the commodities markets gold rose after easing back from record levels during the previous session. The precious metal rose to $982.75 as European equities markets opened, continuing to keep the prospect of the $1,000 an ounce level alive. The precious metal has now gained 20 per cent this year fuelled by dollar weakness.

Crude prices stayed near $106 per barrel, at $105.75, within reach of its $105.97 record. The rises followed Opec’s refusal to boost output and an unexpected fall in US oil inventories.

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  • 297 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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