Last Friday we had some very strong falls in the emerging markets currencies due to the stimulus cuts that the Fed is about to implement. Safe haven investment instruments like the Japanese yen, the Swiss franc, and Gold are getting stronger. In the European markets they have been feeling the effects of the fall in emerging markets.
The worries about the economic slowdown in China, plus the possibility of the Fed reducing its asset purchasing program even more, are continuing to put pressure over the emerging market economies, due to the fact that these countries depend a lot on foreign investment, especially in Dollars; but as the Fed continues to reduce its asset purchases, the flow of Dollars start heading back to the United States from the emerging market regions.
Besides having this week the 10 billion cut in asset purchases from the Fed, the political issues in countries like Turkey, the Ukraine and Thailand are also putting pressure on emerging markets and on top of this we also have the financial crisis in Argentina.
The safe haven currencies like the Yen and the Swiss Franc have been on the rise since the emerging markets started falling. The Dollar versus the Yen has fallen about 2% during the last three trading sessions, reaching the December low of 101.75. We may still see further loses on the Dollar versus the Yen before we see the greenback heading back up. The Euro is struggling to stall its decline versus the Swiss Franc after hitting the low of 1.2226 on Friday.
The fears on the fall in emerging markets and the lack of liquidity in European banks have also hurt the stock markets in Europe, especially the bank stocks. According to an article on the German press, European banks have suffered a capital cut of approximately 84 billion Euros.
For now, all we can do is wait and see how the markets keep reacting for today. At least the stock indexes in the United States are poised to open higher, including the S&P 500, which last week had its worst performing week since June 2012. In general, the MSCI global stock index has fallen 0.6%, which is its biggest fall in a month.