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Glencore Sparks Crisis Fears

It was not a good day for global markets yesterday. Risk aversion was the main theme, as Glencore’s share’s crashed by almost 30% in the London session. The commodity giant’s suffering led to a large risk-off move, with investors starting to think that what began looking like a market shake down, could be leading to a fully-fledged crisis. The FTSE closed lower by 2.5%, pretty much the worst performer in Europe, and it looks like more of the same today, with futures pointing lower by around one percent.

The retreat to defensive positions led to an interesting outcome in the currency market, with investors treating the euro as a safe haven. The single currency rallied heavily against Sterling overnight, as a temporary lack of additional QE action from the ECB has led investors to seek the deep liquidity and relative stability of the currency. 

According to the FT, the Serious Fraud Office is investigating whether the Bank of England rigged the emergency liquidity auctions they held at the start of the financial crisis. There are claims the Bank told banks what prices to bid at so as to minimise balance sheet distortions and therefore make things seem better than they were. The SFO will have to decide whether it is in the public interest to pursue the investigation.

Fed member Evans said last night that the Fed should be ready to provide more accommodation should things weaken very much. Despite this claim, he sees three rate hikes of 25 basis points by the end of next year. Adding further contradiction to his words, he said the Federal Reserve will consider the impacts of a stronger Dollar, which will almost certainly continue to strengthen if the Fed do choose to raise rates by three quarters of a percent over the next year.

President Obama met with Valdimir Putin yesterday, which was apparently very constructive. The leaders reached common ground on how to approach the current Syrian crisis, but differ greatly on President Assad’s future when/if the country is stabilised. Interestingly, this was Putin’s first appearance at the UN in more than a decade.

In Asia, markets have had it worse than they did in Europe. Glencore’s Hong Kong listing fell slightly less than its London stock, but only marginally. BHP Billiton saw it’s worst performance in Australia for more than six years which put almost every regional index lower by more than three percent.

Today, as we mentioned, stocks are already down quite a bit, whilst commodity currencies and emerging markets are suffering heavily. The data sheet has some regional European inflation numbers, which will be closely watched to see if they’re slipping and, if they are, is it enough to warrant the ECB taking further QE action. tonight Mark Carney is speaking in London, though we’re not quite sure of the subject.