Blame Germany and the stumbling Chancellor, Angela Merkel, who looks increasingly out of her depth in running the world’s 4th biggest economy, and more importantly, the biggest economy in the world’s biggest economic region, Europe.
Markets and currencies like the Australian dollar fell under 81 USc overnight as uncertainty deepened about the 750 billion euros rescue/backstop for the eurozone economies.
The euro rose on talk of support.
Other commodity linked currencies such as the Brazilian Real and the South African Rand also fell to lows not seen for up to six months.
Markets lost 2% in Europe, 3% in the US, oil and copper fell, then recovered (oil fell to around $US65 a barrel at one stage).
Wall Street fell 3.6% and is now in correction phase, the Standard & Poor’s 500 index fell 3.9%. It was the biggest fall in a year.
Oil is around a 12 month low, down almost $US20 a barrel from its most recent high of around $US87-$US 88 (which was an 18 month peak). Oil ended around $US70 a barrel.
Gold couldn’t hold those record levels from earlier this month, such is the fear among investors. The metal fell to around $US1182 an ounce overnight.
Ms Merkel raised the hackles of markets and triggered a crisis of confidence with the ban on naked short selling of sovereign debt, credit default swaps and the share of the country’s 10 leading financial groups.
An inflammatory speech by her on Wednesday defending the move and talking about the future of the eurozone and the euro being at stake, frightened markets.
The Swiss central bank was forced to intervene to push down the Swiss franc after billions of euros fled the eurozone and headed for the safety of Switzerland. Billions more flowed out to the US.
The cause, a highly restrictive set restrictions on hedge funds from the European Commission that will drive funds out of London to Switzerland or to the US.
But there are other factors at work.
The unrest in Thailand continued yesterday with more civil unrest in and outside of Bangkok.
It’s clear the government still doesn’t have control of the country. At least 14 people are now known to have died in the military crackdown this week.
The bank holiday continues and there’s a curfew in place over the weekend.
Tensions remain high on the Korean peninsula over the sinking of a South Korean Navy boat killing 46 people.
South Korea blamed the north, which in turn has made one of its usual extremist threats of launching war.
In Australia, there’s the added complication of the resource super tax, but that’s a minor issue compared to the way the German Government is undermining the still fragile global recovery and financial system.
So the euro has again fallen against the US dollar, while the Australian dollar fell again yesterday in Asian trading and then in Europe and in the US where it dropped under 81 USc.
It fell to an 89 month lows against the US dollar as investors sought the safety of the greenback in case Europe worsens.
The Aussie dollar has dropped steadily over the past few days and this morning fell under 81 USc in early Asian trading after it lost 2.5 USc on Wednesday from Tuesday’s 87.67-USc close.
The currency has fallen from a high of 93.29 midway through last month.The euro firmed to above of $US1.24 and then dipped.
The Aussie dollar is down more than 10% this month.
Local shares also fell again yesterday, losing 1.6% on the day.
Sharemarkets are now down more than 10% this month, wiping more than $130 billion from the valuations.
They will be down again Friday.
At the close yesterday, the S&P/ASX200 index was down 70.6 points at 4316.5, a new nine-month low. The All Ordinaries index lost 71.9 points, or 1.6%, at 4342.4.
The market is down 6.4% so far this week on growing worries the global recovery will be stopped by Europe’s problems.
The MSCI index of Asia-Pacific shares outside of Japan fell 1.8% yesterday to a new three month low.
It has now fallen 7% this week and nearly 10% this year.
The Nikkei in Tokyo fell 1.7%, despite the solid first quarter growth figures.
