Thread: Financial markets in November

The greenback turned out to be the best investment instrument in November – the Dollar Index added last month 5.2% surpassing stocks, bonds and commodities. As a result, the forecasts of those who thought that US currency will weaken on the Fed’s extension of the quantitative easing proved wrong.

The advance of US dollar may be explained by the rising bond yields and the signs of economic recovery. The expectations that the Fed’s purchases of Treasuries will help to avoid deflation and spur the recovery pushed US government bonds lower, driving the 10-year yield to from 2.6% at the end of October to 2.96% on November 16.

American currency gained the most versus euro – by 7.43%, versus Denmark’s krone – by 7.37% and against Norway’s krone – by 6.17%.

At the same time the stocks all over the world declined as the risk sentiment worsened due to the European debt crisis and high possibility of tightening in China in order to combat inflation. Euro Stoxx 50 Index lost 6.4%, Spanish IBEX 35 slumped by 14% and Shanghai Composite went down by 5.3%.

In addition, according to Bank of America Merrill Lynch’s Global Broad Market Index, bonds including the reinvested interest fell by 1.1%. Thomson Reuters/Jefferies Commodity Index decreased from 25-month maximum reached at 320.38 on November 9 and closed the month at 301.41.



Chart. H4 EUR/USD

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The above problem can be solved by providing a common place, where people with surplus cash can mobilize their savings towards those who need to invest it. This is precisely the function of financial markets. They, through various instruments, solve just one problem, the problem of mobilizing savings from people who are willing to invest, to the people who can actually invest. Thus from the above discussion, we can co-relate how financial markets are no different in spirit from any other market.