Federal Reserve Board Chairwoman Janet Yellen, as she testifies to the Senate Banking, Housing and Urban Affairs Committee hearing. Photograph: Michael Reynolds/EPA
Federal Reserve Board Chairwoman Janet Yellen, as she testifies to the Senate Banking, Housing and Urban Affairs Committee hearing. Photograph: Michael Reynolds/EPA
In a morning of wild and alarming moves, one stands out.
The Japanese yen has jumped by 1.7% against the US dollar today, strengthening from ¥113.3 to $1, to ¥111.5.
That’s a chunky daily move. And so far this year, the yen has gained by 7.5% against the US dollar, hitting its strongest point since November 2014.
Yen vs dollar (where a falling price means the yen has strengthened) Photograph: Thomson Reuters
That will surely concern the Bank of Japan, which imposed negative rates last month in its latest attempt to stimulate growth and inflation.
A stronger yen is bad for exports, and also deflationary as it makes imported goods cheaper.
Yann Quelenn, market analyst at Swissquote Bank, explains:
The US dollar printed a fresh 16-month low against the Japanese yen, suggesting that traders believe the BoJ will be unable to further weaken the yen, while betting the Fed will remain sidelined for a longer period of time.
But there is also chatter that the BoJ may have to intervene in the markets to weaken the yen.
It’s unlikely that Britain’s medieval kings could have borrowed any cheaper either.
They were notorious serial defaulters, due to the demands of court life and military ambitions.
Mind you, academics at the University of Reading have argued that the picture was more nuanced....
Edward I.
They wrote:
It can be difficult to identify medieval interest rates, in part because interest charges had to be disguised to circumvent the Church prohibition on usury, but we found that the king could borrow at 15% annualised interest when his finances were stable but that this could increase to more than 40% during periods of financial pressure, most notably during wartime.
Edward I probably had a surplus on his account with the Ricciardi, who collapsed as the result of a ‘credit crunch’ caused by the unexpected outbreak of war between England and France.....
Oil is being thumped by predictions of a growing crude glut, as the world economy slows.
The price of US crude has fallen by almost 3% today, to $26.74 per barrel.
That’s a one-month low, but also close to the levels ploughed in 2003:
Bloomberg’s Caroline Hyde tweets the details:
West Texas Intermediate crude oil over the last 15 years Photograph: Caroline Hyde
The refusal of oil producers to cut production is fuelling concerns that we may run out of places to put the stuff, as inventory levels keep rising.
Jasper Lawler of CMC Markets explains:
The threat of further rate hikes from the Fed coupled with diminished prospects for a joint production cut between OPEC and non-OPEC producers have sent US oil prices back down to 12-year lows.
The renewed slump in the price of oil has been unfortunate timing for French oil giant Total to report a 20% rise in annual net profits which CEO Patrick Pouyanne proclaimed as the “best performance” amongst the oil majors.
Today’s rout has driven European bank shares down to their lowest level in three and a half years.
The Stoxx 600 Banks index, which includes the main lenders in Europe, has shed 6.1% and is now at its lowest level since August 2012.
The Stoxx 600 Bank index over the last five years Photograph: Thomson Reuters
Summer 2012 was the point at which the eurozone debt crisis began to ease, with European Central Bank chief Mario Draghi vowing to do “whatever it takes” to save the euro.
Britain’s government borrowing costs have just hit an all-time low, according to Reuters data.
The yield on 10-year UK gilts, which are the benchmark for UK borrowing, has fallen to 1.29% this morning in a wave of buying.
Yield, the interest rate on the debt, fall when prices rise. So this implies Britain can borrow cheaper than at any time before (the data I can see goes back to 1989)
UK gilt yields (lower means cheaper borrowing costs) Photograph: Thomson Reuters
That sounds like good news, except that it reflects wider fears over a global recession. If traders were upbeat about growth prospects, they’d be buying shares instead.
Investors are scrambling into “safer” eurozone government bonds.
That’s another sign that they’re seeking protection against recession and market turmoil.
German government bond yields (the interest rate on bunds) has hit a nine-month low this morning - meaning the prices of these bonds has hit the highest level since May 2015.
And the yield on US 10-year Treasury bills has hit its lowest in three years, at just 1.62%.
That also suggests traders are pessimistic about future growth and inflation prospects.
After a rough start to trading, European stock markets are deep and turbulent sea of red.
Italy is the worst performer, with its FTSE MIB index slumping by over 4%:
The main indices this morning Photograph: Thomson Reuters
FXTM Research Analyst Lukman Otunuga says Federal Reserve chair Janet Yellen is partly to blame.
He reckons investors are disappointed that Yellen didn’t rule out interest rate rises, when she appeared at Congress yesterday:
Although the economic environment has transformed for the worst since the start of the year with ongoing China woes and violent declines in oil prices exposing the US economy to downside risks, in defiance the Fed continues to hold the view of raising rates at a gradual pace.
While Yellen also emphasized that financial conditions in the US have become less supportive of growth, this was counterbalanced with the impressive labour report which in the eyes of the Fed opened doors for a potential rate rise in March.
Yellen will get a second bite at the cherry later today, when she continues testifying to US lawmakers.
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