sterling surges - risk appetite falls - business news
global equity bourses were weaker after disappointing housing data out of the us sparked risk-off trades that saw the dow the nasdaq and the s&p index fall by 1.4% 1.2% and 1.6% respectively. asia pacific markets followed suit with the nikkei 225 closing lower by more than 1.8% and the s&pasx 200 index falling nearly 1.6%. data released by the national association of realtors yesterday showed existing home sales in may had fallen by 2.2% missing consensus calls for a gain of 6%. the report fueled mounting concerns regarding the strength of the global economic recovery ahead of todays fomc rate decision. hampered risk appetite benefitted the yen which continues to approach near one-month highs against the greenback trading just above the 90 handle early in london trade. commodities are largely unchanged with gold holding around $1240 and crude oil straddling $77.50 per barrel. the dollar index is softer falling below the 86 mark late in the asian session. also worth noting is the continuation of a two-week losing streak for the baltic dry index which measures the cost of shipping raw materials and commodities. the index fell to 2547 its lowest level since october of 2009.
in a piece published in todays wall street journal secretary of treasury timothy geithner stated that sovereign nations "must demonstrate a commitment to reducing long-term deficits but not at the price of short-term growth. without growth now deficits will rise further and undermine future growth." the statements come ahead of the g-20 summit in toronto this week where leaders will discuss ways to ensure the health of the global recovery. in response to increasing fears about european sovereign debt governments have enacted strict austerity measures in an attempt to curb soaring deficits. however mounting concerns regarding the slowing pace of the economic recovery suggests that the contraction process needs to be slow at best. as we have said austerity although in the short will alleviate to some degree the slope of the deficit and provide short-term liquidity does not solve the issue of long-term solvency. and with the bond yields continuing to soar eu nations will need to boost net exports and promote more private sector spending in order for the fiscal contraction to actually be expansionary. geithner warns that although there is a "broad consensus about the importance of fiscal sustainability the precise timing and sequencing of that consolidation should vary across countries and be calibrated to maintain the momentum of private sector recovery." uncertainty regarding the affects that fiscal tightening will have on growth and more importantly the global recovery will likely continue to weigh on market sentiment.