Minutes create new uncertainty

The minutes from the end of July meeting of the US Federal Reserve (FED) which was published Wednesday night did not give markets the clarity they were looking for. The minutes repeat the same generalities markets have been fed with over the last half year. Tapering is going to come, but there is no clear time table for when FED would start to slow down their bond buying program.  Whether is going to start this autumn or the first half of 2014, is still an open question. Everything hangs on the development I American economy.

Banks and financial institutions gambling on more clear guidance,  were disappointed. The USD is gaining some ground against other currencies and the yield on US bonds continue to raise. The dollar DXY, a basket of six major currencies weighed against USD,  was up 0,5 %%. US treasury yields reached a two-year high of 2,936 percent. Euro/USD trades down at 1.3321. The Japanese yen is weaker trading at 98,64 yen a dollar. Brent is steady around USD 110 a barrel. Gold trades at USD 1371.

The higher yields have over the last weeks led to a repatriation  of funds back to US from emerging markets helping to support the dollar which in short term looks very bullish. Tapering and termination of printing dollar, shall mean tighter credit condition and higher interest rate. Many emerging markets have big exposures in US dollar and would be faced with big credit problems with a combination of increased interest rates and a stronger USD.

The effects of this trend Is already felt in Asia where the Indian rupee is under extreme downward pressure.  Countries like Thailand and the Philippines are as Turkey strongly hit. The Turkish lira has lost 4 %% against the dollar only this month. Many analysts fear that Asian countries in  a short time would be faced with the same financial and economic crisis as during the Asian crisis at the of the 1990’ies.  This would have a devastating effect also globally.


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