EU crisis dampens global economic growth

debt crisis in Europe continues to hurt global growth as investors and traders are becoming more defensive, protecting their portfolios against money-losing trades.
At the moment risk appetite is underperforming and that has benefited the dollar.

US dollar-denominated assets have risen by 8,5 percent since August 1, 2011. Investors have been piling into dollar-denominated assets, fleeing euro denominated assets.
Market sentiment has forced investors to be bearish, the euro continues to weaken. The euro fell by 1,5 percent to trade at US$1,3187 against the dollar and dropped by 1,1 percent to 102,73 yen and against the pound it fell to 84,82 pence per euro.

Since Mario Draghi took over as ECB president, he has cut interest rates by 50 basis points, further weakening the euro.
From a traders’ perspective, that rate cut is considered as the currency’s pillar of support and has since pushed investors to lose confidence in the euro.
Interest rate hike means the euro will appreciate and rate cut means the euro will further depreciate against the dollar.

Given that risk aversion is high, the bias is in favour of the dollar and that makes all commodity currencies less appealing.
According to the former governor of the Federal Reserve, Lawrence Meyer, “the euro area has created a financial and a banking crisis and that the risk involved range from bank failures to countries leaving the euro”.

At the moment the market is living in fear and remains fragile to any headline news coming from the eurozone.
The market needs direction and at the moment we are not getting that from politicians, as they seem not to agree on the fiscal issues.
In London, the pound weakened against the dollar as it traded at US$1,5547 to the dollar and gained against the euro as it traded at 84,82 pence per euro.

The pound has for the past weeks been mute on events happening in Europe as internal issues have been weighing on it (pound). The EU summit has since been dictating the current market swings as the market is still digesting what was discussed at the summit.

In the South Pacific, the Australian dollar weakened on trade surplus issues as it narrowed to A$1,60 billion (US$1,63 billion) in October from A$2,25 billion in September. The Aussie dollar retreated having earlier rallied after the EU summit, fell by 40 pips to trade at US$1,0174 and dropped by 40 pips against the yen.

African markets
The rand slid to trade at 8,2745 per dollar given that risk appetite is still low as the EU summit offered a few measures and doesn’t diminish the risk of credit downgrades on European nations.

This flow really affects the euro to the downside and weighs on the rand. Investors will definitely reduce their net long positions on riskier assets like the rand.
For South Africa, the euro area accounts for 50 to 60 percent of their exports and mostly commodities like gold and platinum. As it stands this crisis dims demand for their exports leaving the rand trading at lows.

The rand was trading at 10,92 per euro and could weaken to 8,33 per dollar.
In Zimbabwe, the 2012 Budget drew much attention especially the growth rate, which I believe that 9,4 percent is not attainable given the economic climate in the country.

A sense of political paralysis has dampened investor sentiment given the fear that’s out there and without reforms, Zimbabwe will find it difficult to realise a double-digit growth rate.
It’s really crucial for all political parties to boost market confidence as we continue to see very low volumes being traded on the Zimbabwe Stock Exchange.
Transparency is key in order to save Zimbabwe and let certain sectors be the drivers to resuscitate the economy.

Commodity markets
Gold fell by US$50 to trade at US$1 668 an ounce as a weaker euro and a stronger dollar continue to push the metal lower.

At the moment investors are taking positions in the USD/CHF on a declining gold price.
Crude oil fell to US$98,17 per barrel as bearish economic data in Europe and China is hurting demand for the commodity.