Global Liquidity Crisis

Fri, Aug 10 2007, 10:14 GMT
by Marina Schiaffino

FXstreet.com


Global Stocks SlumpThe financial markets have experienced a lot of uncertainty in the last sessions, fuelled mainly by the bankruptcy that many US financial organizations specialized in subprime mortgages are facing since last spring.

This uneasiness is finally affecting the economies worldwide, starting on Europe where the ECB, in an unprecedented move, has injected €94,800 million to the markets in order to compensate the lack of liquidity. One of the main reasons for this movement was the announcement of BNP Paribas to temporarily freezed the liquidation value of three of its funds. The French bank follows the steps taken by other organizations such as Axa or the German bank WestLB.

The US Federal Reserve felt also the tension and injected $24,000 million to the markets. The trading pits were so worried that the US President, George Bush, appeared in a special speech trying to calm down the stock market. At the closing of the August 8 session the Dow Jones plunged a 2.83%, the largest fall in a row since 2003. The President reiterated that the "fundamental bases" of the economy are very "robust".

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Analysts Comments

  • David Jones, Chief economist at DMJ Advisors:
    "There's no shortage of volatility in currencies as we move toward the weekend break. Given the mounting air of panic amongst the U.S. debt markets — plus the fact we're now seeing action by central banks to ensure there's sufficient lending capacity available — this can hardly be much of a surprise." - IHT
  • Stuart Moore, foreign exchange trading manager at St George Bank:
    "There's a lot of nervousness with what's been happening over the last week or two in the US." - News.com.au
  • Hans Nilsson, FX strategist at CMS Forex:
    "In NY trading Thursday, the dollar was higher against key currencies but lower against the yen on fears the US subprime mortgage crisis is spreading to Europe. BNP Paribas SA, France’s biggest bank, halted withdrawals from funds linked to US subprime mortgages, and NIBC Holding NV, a Dutch investment bank, said it lost at least $189 million on US subprime mortgage investments this year." - CMS Forex
  • Mitsuru Saito, chief economist at Tokai Tokyo Securities:
    "The coordinated policy action by the Japanese, European and US authorities illustrated the increased market wariness about the health of the financial system, although the subprime loan problem, in nature, would not joepardize the global credit system." - Thomson Financial News
  • Boris Schlossberg, senior currency strategist at FXCM:
    "Once again the currency markets were roiled by the continuing fallout from the sub-prime crisis. As usual the yen was the biggest beneficiary of risk aversion as speculators fled the carry trades on fears that the sub-prime problem may generate losses in the broader credit markets." - Dow Jones

Published on  Fri, Aug 10 2007, 14:52 GMT

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