Winners and losers in a great capital race
Around the world investors are wondering what to do with their money as the European crisis heads for a messy end.
The first decision they are making is that the Australian dollar is not a safe haven. Last night the Australian dollar fell 1.3 per cent against the euro and 0.65 per cent against the US dollar – a close of 98 US cents and €0.768. An Australian dollar fall is actually good news for a large number of Australian enterprises.
The world does not like Australian dollars because they fear that commodity prices will fall further in the looming economic turmoil; that many of Australia's big mining projects will not go ahead and that we are likely to reduce interest rates sharply (Weekend Economist: European stimulus jolt, May 18).
In addition, world capital is very nervous about the level of Australian house prices and the effect any big fall in dwelling values would have on our banks.
Usually in a race to quality when stock markets are falling, the US dollar is the safe haven and US treasuries rise. But on this occasion the American dollar is falling against the euro, and last night the euro rose 0.67 per cent. There is speculation that the US is going to take to the money printing presses again and undertake another quantitative easing.
Much of the global money last night went to Germany and German bond yields fell. So on a snap 24-hour money manager poll it's German bonds that came out winners.
As Martin Wolf explains, the truth is that Europe has unpleasant options no matter which way it moves (Beyond a Greek collapse, May 18).
The great danger is that the European banking system, which is close to the world's largest, will falter – which will affect everyone.
Meanwhile, at least for the moment, the frenzied selling of shares is easing but those pooled balanced fund Australian superannuation investors who have been overloaded with Australian and overseas equities are feeling as though they had the wrong choice made for them.