Betfair Official Blog

Credit Crunch returns for a second leg - victory on away goals a strong possibility

Daily View - 3rd March...

Is this the second leg of the credit crunch? The rush into secure (?) havens has accelerated over the past few weeks as US Treasury Bond yields slip below 2%, and Gold and other precious metals reach for the sky. Borrowing spreads for even high-quality corporate names are at what appear to be ridiculous levels, as banks scrabble to cover lending exposures in the money markets. Wherever you look in the financial markets you can see the strains showing, and this time it may very well be that the wealthy are caught up in the chaos along with everyone else.

This morning sees the UK's reaction to the 600 point plus drop in the Nikkei, and the general 3% declines across the Far East exchanges. The FTSE is called another 80 points lower as we, yet again, trade the 5700-6050 range. Three sessions ago we were looking at breaking above 6100, this morning the call is 5805-5806. We can easily fall much further than this if buyers do as previously and just hunker down in their shell holes. Trading remains almost random and it is difficult to say that 'this or that' is likely to happen when news/events/stories seem to all be taken in a seriously jaundiced light..

FX markets had another go at recent Dollar lows in early action this morning, but buyers were as strong this time as previously. The Euro has seen some solid selling at the 1.5240 level (as we saw on Thursday and Friday,) and has reacted with a swift drop to 1.5185-1.5187. The markets appear poised for another dramatic move but unfortunately, the direction is not clear. There will be a lot of traders who have sold the Euro above 1.5000 and these may be considered 'weak' holders, hence there is a good chance that a new move will develop to the upside to try to squeeze these positions. On the other hand, it cannot be denied that a 1.50 Euro/Dollar cross is unsustainable in the long run as Europe would simply grind to a halt as its competitive position erodes away.

Sterling is weakening in line with Euroland this morning at 1.9815-1.9818 vs the dollar but has already rejected the all time lows against the Euro of 0.7680 in early-morning action in the Far East.

The one bright bullish area is the one that we all wish would be bearish. Gold is another seven bucks higher at another record level ($984) whilst the price of Silver above $20 means it has moved over 15% in the last two weeks The recent moves may be more a bear squeeze as there were some heavy shorts built up in Gold and Silver in the low 900s and mid 17s respectively. If we can maintain these prices for a bit then the next push higher cannot be long coming, but the probability of a major reversal are likewise increasing with every dollar we move.