David Morris

THESE are truly extraordinary times. There is so much affecting financial markets that it’s difficult to know where to start. We’ve seen some odd movements recently, not least the drop in US equities last Thursday. US indices were already down 3 per cent when liquidity suddenly dried up. Bids in thousands of financial instruments simultaneously disappeared and this led to the Dow (and other indices) falling 5 per cent in minutes. There are suspicions that high frequency trading programmes played a major role.

Investigations are underway and we can only hope that a full and accurate explanation will be forthcoming. There also needs to be action to ensure that this kind of failure is not repeated. Disruptions of this sort undermine the integrity of the marketplace, and the issues need to be dealt with swiftly.

Thursday’s drop came in the middle of the sell-off of risky assets driven by the sovereign debt crisis. After months of declining volatility, the Vix soared over 70 per cent last week as equity investors were rudely reminded that they were being too complacent.

Yesterday saw markets caught off guard again following the “shock and awe” European bailout. The unprecedented €720bn package coupled with the ECB’s u-turn on bond purchases saw the dollar slump and equities soar. Greek and Spanish indices were both up around 12 per cent.

Meanwhile, gold and silver are again proving resilient as sovereign debt fears persist. The only solution on offer is a promise of more debt to pay for the old debt. Aside from the obvious issue of moral hazard, there are questions about how these bailouts can be financed without turning on the printing presses. With this in mind, investors continue to buy both precious metals.