Marketmind: “Our Currency” and Falling Knives

Marketmind: “Our Currency” and Falling Knives

(Reuters) – A look at the coming day in Asian markets from Jamie McGovern

The fear and fragility gripping global markets can be summed up by quoting 50 Years of the Dollar from the then US Treasury Secretary, and the famous investor principle about catching sharp kitchen utensils that obey the laws of gravity.

“The dollar is our currency, but it’s your problem,” John Connally told his G10 counterparts in November 1971.

What was true at the time has rarely been more important since then, as the dollar’s massive surge in global currency markets has left a trail of devastation in its wake. Monday’s spotlight was on London and Beijing, but where’s next?

The chaos in the UK market is at the forefront and center of global markets, but it has a special impact on Asia through its foreign exchange reserves. About $625 billion of global foreign exchange reserves are in sterling, most likely in the form of gold bonds. Asian central banks hold large reserves – gold bonds and the British pound are taking a beating.

Meanwhile, China’s central bank said Monday that it will raise the currency risk reserves of financial institutions when buying foreign currencies in the forward market to 20% from zero. The yuan is still falling to its lowest level in two and a half years.

โ€œDon’t try to catch a fallen knife,โ€ is the sound, albeit very obvious, advice to any market participant. With almost every financial asset and market banning selling dollars, most investors will hang on to it for the rest of their lives.

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Global stocks have fallen five consecutive days, nine of the last 10 days. It lost about $23 trillion in market value this year. Is anyone willing to try and grab this knife?

Global financial conditions are now the most severe since 2009, according to Goldman Sachs (NYSE:). With US and dollar bond yields continuing to rise, and global equities further down the line, conditions are likely to deteriorate before they improve.

Graphics: Global Stocks Market Cap –

Key developments that could provide further guidance to the markets on Tuesday:

South Korea Consumer Confidence (Sept)

Japan PPI Services (August)

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