Risk Aversion Slams Global Markets

Asia Pacific markets tumbled for a second day after a breathtaking trading session in US equities saw the Dow fall nearly 1000 points before quickly rebounding, closing lower by 347 points. Although markets were weaker throughout the session, it is unclear as to what triggered the largest intraday swing in the Dow's history. The Vix spiked to a 1-year high at 32.80, with the index up 62% in the last four days. Ongoing fears regarding sovereign debt contagion have intensified and continue to weigh heavily on markets, after ECB President Trichet failed to comfort uneasy investors at the monthly policy meeting yesterday in Lisbon. As expected, the central bank left rates unchanged at 1.0%.

The Nikkei 225 fell 3.1%, with the Hang Seng Index and the Shanghai SE composite both lower by 1.06% and 1.87% respectively. Risk aversion boosted the dollar index to a 1-year high, briefly breaking above the 85 handle. Dollar strength and high inventory levels have kept pressure on crude oil, which fell below $76 per-barrel yesterday in New York. Crude has since paired some of its losses, trading at $77.40 at 9am in London. Gold was softer after a stellar 3% gain yesterday. Reduced risk appetite increased demand for the precious metal, pushing the price to a fresh 6-month high at $1210, before settling just above the $1200 mark.