Video: Why are markets so scared?

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by Charlie Parker on Jun 29, 2010 at 12:09

There is real fear on global markets today. Not only has the FTSE dropped below 5,000 points but safe assets have seen big buying.

In particular US Treasury bills – the ultimate place to run when you’re scared – have seen their yield drop below 3%. Investors have not been willing to lend that cheaply in exchange for US government safety since the bottom of the market in April 2009.

So what is driving this fear? Quite simply the world is hitting a crunch point where not only are governments beginning to put the squeeze on spending but central banks are also coming to the end of the ‘free money’ they were handing out in the credit crunch.

The European Central Bank’s will on Thursday be taking back more than €400 billion of lending it made to banks a year ago and will only re-lend for a period of three-months at a time. That has rattled European banks and investors all across the world have noticed.

Add to this pretty grim data from China and the United States in recent weeks – together with fear on what this week’s US non-farm payroll data will reveal - and you have an environment which encourages investors to believe that a double-dip recession is becoming more likely.

For the moment the data is going against those like our chancellor George Osborne who seem blissfully unconcerned about the risk of full-blown deflation.

What could calm markets now? Probably the central banks of the world including the Bank of England saying they will print more money. Is that likely? Not for a while especially in the UK where you have the first member of the Monetary Policy Committee in Andrew Sentance calling for a rate hike.

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Andrew Visser

Jun 29, 2010 at 14:04

At a time when we all need to stand together and apply common sense, it seems to me that there must be currency in disaray,once again the nations of the world seem at odds with each other. If you put up rates, the cost of mortgages will be effected, less people borrowing, more people renting.When you rent a property you have no desire to make it look good for some one else, therefore less money spent on D I Y, if you squeeze spending more people become out of work.That is just one example.We need to encourage spending, create jobs. more jobs means that more goods and services required, it a no brainer.

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