Tuesday, June 13, 2006

Global markets feel effect of risk-averse investors

(Source Article: Global markets slide - FT.com)

On Tuesday, global markets took a turn for the worse when investors shed risky assets (e.g., shares, commodities) in favor of bonds and cash. Emerging markets and their currencies took serious blows, as did gold, silver, and other metals.

Inflation, interest rates and potential slowing of economic growth continue to fuel the panic of investors worldwide. One observer noted that the actions of investors are a response to the approach central banks are taking in order to deal with potential inflation. The Nikkei 225 Average suffered a 4.1% drop; Hong Kong fell 2.5%; Turkish stocks fell 5.7%; and Colombia markets experienced a 9.4% drop. (see Heavy selling again for emerging markets - FT.com)

In the US, consumer spending is slowing down as household incomes are feeling the squeeze from higher energy costs; this slowdown in spending is contributing to the problems prompting the Federal Reserve chairman to raise rates—an approach, as mentioned above, being taken by other central banks. (see Lingering inflation concerns likely to fuel volatility)

Meanwhile, US Federal officials remained spooked by the looming specter of inflation: Cleveland Fed president Sandra Pianalto commented that “this inflation picture…exceeds my comfort level.” Elsewhere in markets, gold took a 6% loss resulting in $569 USD an ounce while silver and copper fell 10% and 7%, respectively.

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