22 August 2012

Zimbabwe: Eurozone Woes Distress Markets

VOLATILITY in traditional markets like currency market has pushed investors to look for alternative asset classes like gold, wine, diamonds and art. In the currency market we could see a correction in the euro in its trade with the United States dollar to around 1,2250. The euro-dollar pair is trading within some good ranges as European problems continue to drive the markets.

Trade data has also been affecting the currency market with China driving the trade patterns.

China, a driver of demand for commodities, has since been on a slowdown as it weakened to 7,6 percent, its weakest in three years.

Trade patterns affect commodity driven currencies either to the upside or to the downside but of late most of these currencies have been riding on headline risk from Europe and bearish data in China.

Since the global market is so stretched this has left investors to hold key positions in US treasuries and gold as a store of value.

At the moment the market is mixed with positive and negative news, but the market is reacting more to the negative but the trend remains positive.

The euro continues to fluctuate against most of its peers. The euro added 0,1 percent against the dollar to touch US$1,2344 and depreciated by 0,3 percent against the yen to trade at 97,89 yen.

Speculation that Europe's debt crisis and a Chinese slowdown will curtail global growth bolstered bets that central banks will move in to support global economic recovery sent gold higher to US$1 621,45 an ounce as well as global equities.

Commodity currencies were supported by the ongoing crisis talks in Europe as that brought risk appetite to the furore.

In London, the sterling pound inched higher against the dollar by 0,2 percent to trade at US$1,5709 and was little changed against the euro trading at 78,59 pence per euro and looks likely that the euro will hit new highs supported by headline news.

The Bank of Japan's desire for a weaker yen is being thwarted by a global thirst for safety as middle-east tension intensifies in Syria and Iran.

As Europe debt crisis enters its third year and monetary easing by central banks drives bond yields to record lows, investors have been piling into Japanese assets and that has supported the yen to the upside against its counterparts.

The yen pared gains against the dollar and the euro as it touched 97,89 yen against the euro rose by 0,3 percent and rose slightly against the dollar to trade at 79,41 yen.

In Australia, the so-called Aussie dollar pared gains against the dollar and the yen on prospects the European Central Bank will try to cap bond yields for Italy and Spain thus supporting risk appetite.

The Aussie dollar added 0,3 percent against the dollar to trade at US$1,0449.

The Australian dollar is one of most interesting currency because of its relationship with China and as a barometer of global risk.

Zimbabwean markets

A lack of earnings and economic growth has never really pushed Zimbabwean stock market higher.

Uncertainty as to whether they will be elections is still the biggest fear that's out there and questions over the health of the banking sector continues to worry international investors.

Zimbabwe is faced with a distressed industry, which is in dire need of financial support, and central bank intervention through trading short-term securities will help aid the banking sector.

Mining is a sector that can address those liquidity constraints.

The risks are getting bigger and bigger as long as the political and economical climate is not addressed.

South African Markets

South Africa's trade activity has hit its lowest levels since December 2011. That pushed rand weaker by 1,3 percent against the dollar.

The rand was trading at 8,3209 to the dollar. Having seen a rand rally for most parts of last week those gains were tempered on prospects that the Federal Reserve will refrain from further stimulus which could debase the greenback as well as uncertainty whether South Africa's labour act really does protect employees.

Commodity markets

Crude oil was little change still to trading above US$95 per barrel on Middle East tension to trade at US$95,91 per barrel just 0,1 percent shy of that US$96 per barrel.

Gold inched higher on prospects easing by central banks could help rejuvenate growth.

The bullion was trading at US$1 621,45 an ounce. My chart of the day this week's Federal Reserve Bank minutes are the ones to watch.

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