Turmoil continued on the money markets yesterday as investors fled around the world currencies and stocks looking for safe havens. This led the price of Gold to jump above $1,700.00 for the first time in its history.

Traders, who once would have jumped into the Greenback for safety, shunned the Dollar as the markets opened following the downgrade of US Debt by S&P.

The Swiss Franc remains the only currency that has been looked as a safe bet despite the Swiss Central Bank doing everything in their power to weaken their currency.

Commodity currencies like the Canadian and Australian Dollars and the South African Rand, which have strengthened over the past 2 years, have all taken hits of 7-9% over the last fortnight.

The Dow Jones finished 634 points down.

Sterling has actually remained relatively buoyant over the recent chaos in spite of the UK’s figures continuing to range above and below expectations.

With most of the markets embroiled in the ongoing Eurozone and US problems, the UK has stayed quiet and the long-term plan of both higher taxes and reduced spending to cut the deficit seems to be starting to take effect.

An interesting bit of news out today was that the price of German CDS’s (Credit Default Swaps) rose above that of the UK’s for the first time ever.

This is potentially a huge step as Germany has been seen as a rock in the markets despite the fact they are bailing out most of Europe.

If the cost of insuring debt is cheaper in the UK, then the bond markets (which generally are the first sign of change) could be showing the way for a rise in Sterling against the Euro over the coming months.

Money markets around the world crashed yesterday on fears that the worldwide recovery is faltering and we could be heading back into another crisis. Further rumours about Italy and Spain defaulting on their debt sparked panic across the board with the Dow Jones ending down over 500 points.

The already sinking markets went into meltdown after Jean-Claude Trichet failed to reassure investors that bond buying would be implemented to prevent contagion in the troubled Eurozone.

Trichet said “you will see what we do”, yet it was revealed only Irish and Portuguese bonds would be bought.

The unconvincing tone of Trichet led to huge swings in the Eurodollar with the pair ranging 3 cents in the days trading.

Investors led another surge into the safe havens as the Swiss Franc and Japanese Yen strengthened despite the measures from their 2 central banks over the previous days.

Gold reached another record high and we look set to finish the week in fear of what will happen next.

The BoE and ECB both announced no change in their interest rates with the likelihood of any rise in the short-term of the table while the economies struggle to grow.

We end today with the hugely important non-farm payrolls numbers from the US.

This takes extra importance as not only does the US need a strong figure to boost their own problems.

The world’s traders will be watching the announcement hoping that a positive result will turn the tide and bring a bottom to the recent sell-off.

As US corporate results continuing to surprise on the positive side the wise money is increasing their investment risk profiles. The Dollar accordingly came under renewed pressure with investors again off-loading the Greenback to invest in equities and commodities as well as in the commodity based currencies.

This latter strategy is especially attractive at present with these currencies currently offering a big pick up in yield when compared to that of the US currency.

So, the Aussie reached a post-floatation high at 1.0775 and with the Dollar index hitting a 3-year low, both the Euro and Sterling touched 16-month highs at 1.4640 and 1.6517 respectively.

Gold was up again and USD/CHF hit an all time low.

One can argue that with ongoing developments in the Eurozone debt market and continued evidence of economic recovery in the US that the spot market has got it wrong but that would be a bit like King Canute trying to turn back the tide.

Go with the flow but watch carefully for the turn in sentiment.

Back to Europe. The 2 debt offerings, from Spain and Portugal were better received than had been feared with the former successfully auctioning 10 and 13-year bonds, admittedly needing to pay a higher yield but on the positive side, garnering better coverage than at the last similar offering.

Portugal also achieved its desired cash raising, via a 3 and 6-month bill sale, but in this case, not only was demand down but the yield demanded was higher than the last, pre-bail-out, rate.

This doesn’t make any real sense and obviously indicates the market’s trepidation over the future path of the country’s financial well-being.

With a further escalation of fears of a Greek debt restructuring as well as concern over the Irish demands for a renegotiation of the terms of its own bail out, the correlation between bond yields of the Eurozone constituent states was become fractured.

Yields on 10-year bonds issued by Greece, Ireland and Portugal are respectively 15%, 10.5% and 9.3% compared to the yield on 10-year German bunds of 3.3%.

If the market’s perception was that the current problems were containable then spreads of this magnitude would not exist. Numbers say more than words ever can…..