Risk is the word again

Mark Twain famously said “history doesn’t repeat itself, but it does rhyme”. Risk is the word againIf he is right we may be in for a very bumpy ride over the next few weeks.

Today we find ourselves in a very similar position to October 2008, and we know what happened in the post Lehman financial markets.

The FTSE lost almost 1000 points in two crazy weeks of trading between the 3rd and 17th of October, and Sterling lost a huge amount against the safe haven Dollar and Euro.

We are not suggesting this will definitely happen, there is no Lehman as yet, but the similarities are striking and we do have a Greek default that has the potential to act as the trigger for further declines in risk assets.

Across the money markets this morning we are seeing risk not taken, but dragged kicking and screaming off the table.

Stock markets are continuing to post declines and the Dollar has moved significantly higher against the Euro, pushing Sterling down with it.

Standard & Poor’s, the rating agency, suggested Europe faces a rising risk of a double dip recession the announcement has been the catalyst for the move in early trading.

Added to this Dexia, a Belgian bank with a large exposure to Greek sovereign debt looks likely to need governmental assistance over the coming days.

Rumours about Dexia’s future have been rife for quite some time and to some degree had already been built in but the news is compounding the feeling of unease and uncertainly in the market at the moment.

George Osborne outlined plans to ease credit to small business across the country in his speech at the Conservative Party Conference in Manchester yesterday.

The Chancellor also reaffirmed his stance on the spending cuts – that he is not for turning – in spite of the increasingly poor outlook for the UK economy.

Whether his stance turns out to be brilliant or foolhardy will have to wait until next year but for the former to play out he will need the Bank of England also play ball and start the easing process sooner rather than later.

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