The economic roller coaster continues, but unfortunately sick bags will not be provided says BetOnMarkets.com’s Michael Wright.
Wall Street resumed its slide last week, as the uneasiness about the wilting mortgage market and concerns about the broader economy, triggered selling ahead of the unofficial start to the holiday shopping season. The Standard & Poor’s 500 index and the Dow Jones industrial average were both hurt by traders unwinding positions going into the Thanksgiving holiday weekend.
The decline in the markets has put the S&P 500, FTSE 100 and French CAC indices in negative territory for the year. Many investments such as such as ISAs or tracker funds simply track the benchmark markets, which means that at the time of writing, a lot of passive investors are looking at negative returns for 2007.
The stock market has been thrashing about recently as investors attempt to gauge how companies will fare amid a further slowdown in the U.S. housing market, a deterioration of credit, and record oil prices. Up to last
Wednesday’s slide, stocks had fallen in eight of the 11 last sessions.
In economic news, the US Conference Board suggested an economic slowdown could accelerate in the coming months, amid rising costs and further weakness in the housing market. Also, the Reuters/University of Michigan
Consumer Sentiment Survey showed its lowest reading in two years – an unwelcome development for retailers entering what is for many, the most important period of the year.
Investors turned to government bonds amid the uncertainty. The yield on the 10-year US Treasury note, which moves inversely to its price, fell to 4.01 % from 4.09 % late Tuesday. This flight to quality is occurring as LIBOR rates tick up again, and many debt auctions are pulled.
All of this didn’t do much to help the US dollar, which over the last few weeks has been weaker and weaker against the major currencies. At the time of writing the EURO was worth 1.4860 USD and the GBP was trading at 2.0655 per US dollar.
Since 2003 central banks have gone on record to announce that they are diversifying away from US denominated holdings, and buying euros and gold. There has also been anecdotal evidence of the Dollars’ decline, with
supermodel Giselle Bundchen demanding payment in Euros, and recent rap videos displaying wads of Euros instead of Dollars.
The decline has accelerated in recent months as traders price in a weaker US economy and further currency eroding rate cuts. With signs that the US economy is no longer creaking, but cracking, a weak dollar may be here to stay for the foreseeable future. In short, this may not be a temporary weakness.
The average trader can profit from the decline of the US dollar, by buying a Betonmarkets.com ‘no touch’ option. This compensates the trader if the underlying market doesn’t touch the predetermined level.
A No touch option on the Euro/USD exchange rate with a 20-day duration, and 550 points (5.5 cents) away from spot, pays 8%. This mean that the Dollar could weaken further, strengthen slightly, or stay where it is and the
trader would still win.
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