Stock-Markets
Diamond Rated - Best Financial Markets Analysis ArticleAs I reluctantly start packing my bags after a most enjoyable two weeks of R&R in Europe (see my posts on Slovenia and Switzerland), “Words from the Wise” comes to you a bit more cryptically than usual. However, a full dose of excerpts from interesting news items and quotes from market commentators is included.
Despite having crisscrossed Heidi’s country, I have yet to find the elusive Swiss gnomes to glean what they make of financial markets at this juncture. Meanwhile, the past week has been characterized by a fresh wave of risk aversion, as uncertainty over the global economic outlook took its toll on stock markets, commodities and precious metals, and investors favored safe-haven assets such as government bonds and the Japanese yen.
The S&P 500 Index, Dow Jones Industrial Index and the Reuters/Jeffries CRB Index - all now in corrective mode - closed down for a fourth consecutive week, while US Treasuries recorded gains for a fifth straight week and the Japanese yen for four out of the past five weeks.
The yen is often seen as a global barometer of risk aversion. The graph below demonstrates the strong inverse relationship between the movements of the yen (against the euro, in this case) and those of the Dow Jones World Index. As shown, a falling yen indicates risk tolerance (and a willingness to buy risky assets) and a rising yen shows risk aversion (and an indisposition towards risky assets). A downturn in the yen exchange rate could be a good indicator to keep an eye out for confirmation of better times ahead for stocks and commodities.
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