httpvh://www.youtube.com/watch?v=QTcqbxlcPP0

The market is beginning to feel a lot like 2008; liquidity problems, growth downgrades, massive shifts to risk averse assets and equity market slides. All we need now is a bank to fall over and it could be 2 years ago. We could have another crack at the World Cup?

Markets reacted unfavourably to the Fed’s decision to reinvest MBS proceeds into debt markets in a bid to reinvigorate the US economy. It is at best an appeasement, at worst an out of touch attempt to solve the problem; a leach in the age of keyhole surgery.

Risky assets, including the dollar, were well bid throughout the trading session with the Yen pushing to 15 year highs against the greenback. The JPY is a classic risk barometer and to have it at such extended levels is a testament to exactly how scared investors are at the moment.

Sterling too hid the skids yesterday as Mervyn King did what he does best and gave a downbeat assessment of the near term prospects. Growth was downgraded and inflation is expected below target in 2012. This hampered sterling as one might expect (low inflation leads to low interest rates and makes sterling a less attractive currency pair to invest in) and it slid lower against its competitors. All except the euro, which is stilled a viewed, and rightly so, as a very risky asset. EUR/USD had its largest fall since May while GBPEUR surged back into the 1.21s.

The overall feeling is that without a prosperous earnings season acting as a decoy then investors are focusing on the harsh reality of the global economy.

Matters were not helped by US trade data that showed the largest trade deficit since June 2008 so while US consumers are still spending they are sending that money abroad, not what the US wanted at all.

Data to focus on today is all US centric that will only add to the dollar volatility. We start with Initial Jobless Claims at 13.30 which pushed higher towards 490k last week but is expected to moderate lower this time around while continuing claims should stay at around 4.5m people.