Risk Off Trading As World Bank Cuts Global Outlook

U.S. stocks were down yesterday, during another turbulent day underscored by concerns that the Fed may narrow their stimulus policies. These include the $85 billion a month asset purchasing program, which pours liquidity into the market to encourage economic recovery. With no further key data releases or earnings reports around the corner, there is no gauge to keep testing the temperature of the economy. This could mean further volatility in the markets for a while.

European and Asian stocks saw steep declines in the overnight session following the World Bank revising and cutting down the global growth outlook. The World Bank’s report showed an expansion in the global economy of 2.2 per cent for 2013. This comes after January’s outlook of 2.4 per cent expansion and below last year’s number of 2.3 per cent. This sent stocks falling in Asia and the USD/YEN falling below the 95 mark, pushing investors to place stop-loss orders which in turn saw the Nikkei 225 plunging 5% which means a 3 week loss of 20 per cent. The loss was not stemmed by the BoJ pledging to make an acquisition of YEN200 billion worth of 10 year and over bonds, and a further YEN 450 billion worth of 5 to 10 year bonds.

The World Bank anticipates growth in China to expand at a rate of 7.7 per cent this year.This is a revision of the earlier outlook growth figure of 8.4 per cent. Uncertainty over the Bank of Japan’s policy measures meant investors were engaging in risk-off trading.

Stocks
The US indices closed broadly lower with the DJIA closing 0.84 per cent lower, the S&P 500 closed down 0.84 per cent and the NASDAQ finished 1.06 per cent down.

In the European morning session, the EURO STOXX 50 was down sharply by 1.37 per cent. The French CAC 40 was down 1.16 percent and the German DAX 30 plummeted 1.87 per cent.

Asian stocks took a beating in the Asian session with the Nikkei 225 losing over 5.60per cent. The Shanghai composite, which reopened after a three day holiday initially plunged 3.87 per cent on the World Bank’s comments on China. The Hang Seng was 3 per cent lower, and the Australian ASX 200 knocked off 1 per cent for the 2nd day running following unemployment figures of 5.5 per cent in Australia for May.

Forex
The USD’s fortunes of yesterday were reversed, as the greenback lost against most of its counterparts. It fell 1.78 per cent against the YEN, 0.39 per cent against the Swissie and 0.19 per cent against the EUR. The Aussie continued its ill fatted drop against its American cousin, losing 0.36 percent even with the decent unemployment data release.

Commodities
Despite the weaker USD, commodities did not fare well. Gold was down 0.33 per cent, Silver down 0.04 per cent, and Crude down 0.63 per cent among Middle Eastern turmoil and worrying global outlook.

Today:
Expect high volatility throughout the European session and into the U.S. session. The ECB is due to release a monthly report, followed by the Italian debt auction. Later in the day though, attention will switch to the U.S., where jobless and retail sales figures are released. Expect gains in both indexes.