Weekly Update – 12/02/2016 by Michela Jaccarini

Good morning!

This week has been another risk off week with gold rising to a price of 1236 following increased uncertainty in the financial market. The turmoil hitting the markets and the banking stocks’ sharp plunge has sent worldwide warnings to investors about the future of the financial markets. EU Finance ministers however do not believe that we are heading into another session as we did 10 years ago, but believe that budgets and the real economy are picking up throughout the euro zone. Since the last recession, banking unions have put in place new rules and regulations in relation to capital capacity and balance sheet structures.

On Thursday however, European banking equities extended declines, pushing the STOXX 600 European bank index down 6.3 percent by the end of trade. Also this week, Credit Suisse stocks have declined 17.6 percent, shares of French banking group Societe Generale has fallen 14.47 percent and Credit Agricole has fallen 11.30 percent. Bank executives are having to reassure investors that there is nothing to fear, however alarm bells are ringing!

Germany remains Europe’s biggest economy, but its main bank is only the 17th largest in the region, following a tumble in its stocks. Deutsche Bank shares have lost 41 percent of their value this year, compared with a loss of 28 percent for the STOXX 600 European bank index.

On Friday, the Asian markets dropped significantly following the uncertainty in the market and the continued sell-off in oil. Japan’s Nikkei 225, which reopened after a public holiday on Thursday, dropped 760.78 points, or 4.84 percent, to 14,952.61, falling for seven of the past eight sessions to its lowest close since October, 2014. The Nikkei 225 has been on a downward spiral in recent days, as the yen rapidly strengthened against the dollar, with the index ending down more than 11 percent for the week.

This week FED Chairman Janet Yellen testified twice in front of Congress and spoke about the US economy. She has not ruled out the possibility of a downward trend and explained that the central bank is evaluating whether negative interest rates would help such economic conditions. Traders are now pricing in the possibility of a rate cut rather than a rate hike this year! The current weakness in the dollar which is the main reason for low inflation has come as a surprise to FED officials.

Good luck!