Equity markets suffer huge losses as global economic concerns resurface

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We witnessed the biggest falls on the FTSE 100 in 3 years yesterday on fears of the global economic recovery, prompting investors to seek risk averse positions in the markets. The sell-off in world equity markets was triggered by the threatened financial transaction tax in Europe, the imminent bankruptcy of Greece and the moral bankruptcy of Washington politicians that encouraged four investment banks to lower their forecasts for global growth.

Gold prices reached a new all time high and bond prices soared as well as investors sought investments that protected themselves from market volatility. The "flight to safety" saw the commodity currencies (the Australian Dollar, New Zealand Dollar and Canadian Dollar) lose ground as concerns over the state of economies around the world are heading towards a "double-dip" recession.

Sterling on the other hand had a decent day closing yesterday up over and a half against the Euro and a cent up against the commodity currencies. Sterling was able to make these gains against the backdrop of more poor market data, this time July's retail sales which were up by a paltry 0.2%. 

In the US, the CPI measure of inflation was unchanged at 3.6% and had no impact on the US Dollar. Later in the day, existing home sales in the US revealed a -3.5% fall but the big shock came from the Philadelphia Federal Reserve's manufacturing index. 

The index showed manufacturers around the eastern city of Philadelphia collapsed to its lowest level since 2009 as the index tumbled to minus 30.7 this month, against forecasts of a reading of plus 3.7. The number is the weakest since the US was mired in its last recession during the first quarter of 2009, compared with a reading of plus 3.2 in July.

Today, UK public sector net borrowing is released which is the difference between spending and borrowing between public sector organisations. A reduction in the budget deficit should be good for Sterling. 

The consumer price index (CPI) inflation number is out from Canada with expectations for 0.2%. Have a good weekend.