Volumes may be low but the mood of the markets is lower still. Thursday has seen yet another burst of risk-repulsion with equities and commodities heading south, the dollar heading north and yields on government bonds drifting lower. It would be difficult to pinpoint a particular trigger for the selling, apart from ongoing concerns regarding global growth and the situation in Europe. Germany’s gradual back-sliding from the commitments made by Angela Merkel at the EU Summit two weeks ago is certainly hurting, with the single currency falling to 1.2170, a new two-year low.
Interestingly, the high-beta currencies are the biggest casualties today, with the Aussie and Kiwi down by more than 1%. Meanwhile, both the dollar and the Japanese yen continue to advance against this latest diversion into ‘safe’ assets/currencies. Over the past year, the dollar index has risen by 12%. Although the market seems quite long of dollars, it appears that the weight of capital flows still favours the greenback.