The past few days were very volatile for global markets and currencies. A number of factors combined to cause this volatility and although many of the affected markets and currencies have rebounded slightly by now, it is important to look at the factors that caused the dramatic ups and downs.
Declining factory numbers out of China increased concern that the world’s second largest economy is taking longer to get back to full steam. Japan’s main stock exchange, the Nikkei, fell by over 7% overnight after increasing by 80% since November. It remains to be seen if this is just a correction on a continued upward trend due to the Bank of Japan’s new policy of stimulus or if it is the realization by the markets that the declining and aging population of Japan may never be able to be the force of consumerism that it was in the past. This drastic one day decrease contributed to lower stock market results globally over the past days.
Ben Bernanke, the chairman of the US Federal Reserve, made comments that contributed to the overall volatility. His first remarks encouraged the markets when he noted that the Federal Reserve’s bond buying stimulus program needs to continue to ensure the economic recovery maintains its current forward momentum. However, shortly after the initial speech, Bernanke hedged his initial position by saying that the stimulus measures cannot go on indefinitely and if economic data supported it, the program could taper off in the next few months. The markets surged with exuberance on the first speech and then fell sharply with the secondary comments. Despite the market reactions, the all important housing sector continues to improve in the US which should assist in job creation and continue to push the US economy forward.
In Canada, the stock markets exhibited similar volatility to many other countries, but the quick nature of the markets is best shown by the Canadian dollar. On Monday afternoon, the dollar ended at $0.978 and by Wednesday afternoon it had fell to $0.9675. It is now back up to $0.97 and may continue upwards for the afternoon. This is a perfect example of watching the markets closely to take advantage of volatility, especially for clients that may need to exchange substantial sums for real estate purchases.
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The Mortgage Centre: Garibaldi Mortgage