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Share Markets Plunge : Pound Sterling GBP Forecast Higher vs AUD, NZD

September 29, 2015 - Written by John Cameron

The mood in the markets deteriorated significantly during the latter part of yesterday’s session and share markets across the world plunged. The downshift was triggered by increased fears from investors regarding the ability of some of the world’s leading mining and extraction companies to cope with the sharp correction in commodity prices which began during the first half of 2011 and has accelerated during recent months.

These renewed fears were triggered by the publication of a research note from Investec which suggested that heavily geared mining companies including FTSE 100 favourites Glencore (GLEN.L) and Anglo American (AAL.L) might see ‘almost all equity value eliminated’ thanks to a potent combination of their high level of indebtedness and the continued ultra-low market prices of raw materials. Glencore PLC’s share price closed down by a whopping 29.42% on the day, while Anglo American PLC’s stock shed more than 10%.

The ‘risk-off’ trading environment saw London’s benchmark FTSE 100 close down by a heady 2.46% on the session, while Frankfurt’s Dax and Paris’ Cac 40 dropped by similar amounts. The bloodshed continued when New York opened, with the broad-ranging S&P 500 trading down by almost 2.5% by the latter part of the US trading day.

Meanwhile, the closely-monitored VIX ‘Fear Index’, which measures the frequency of protective ‘put’ options placed by Chicagoan equities traders, jumped by almost 20% on the day to breach the 28.0 level. This move heavily suggests that the mood in the markets has blackened significantly since the US Federal Reserve Chair Janet Yellen stated late last week that it remains highly likely that American interest rates will be on their way higher before the end of this year.

Yellen’s words are likely to ensure further near-term support for the US Dollar (currency : USD) against the Pound Sterling (currency : GBP). Meanwhile, if yesterday’s flight to safety from investors continues today, then analysts forecast that the Pound Sterling could break to fresh multi-year highs against both the Australian Dollar (currency : AUD) and the New Zealand Dollar (currency : NZD).

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