Sitting on a Powder Keg - We have a full plate on the menu today - Ireland, Portugal, North & South Korea, FBI raids on New York hedge funds, did I leave anything out? With all this going on, it's no wounder that the risk aversion trade is on with a flight to safety in USD and CHF. On the Korean peninsula, artillery fire between North and South Korea caused the South Korean Won to tumble. The central bank of SK called an emergency meeting after S&P said that they would review SK's credit rating due to escalating tensions. The Yen, which usually gains during global tensions, was firm but slightly down versus the USD due to a market holiday in Japan. In Europe, the weekend EU/IMF rescue package for Ireland and its banks was in jeopardy due to political opposition and a possible election call causing the Euro to move lower across the board. It looks like the Irish public is mad and is taking a page out of Iceland's book and is refusing to bailout banks. The usual calming effect on bonds markets after a rescue package is announced is missing this time around due to the uncertainty of the Irish election. This is causing ripple effects in Portugal and Spain - today Spain was forced to almost double the interest paid to investors at a bond auction which raised 3.26 billion euros. The difference, or spread, between the rate that Spain must pay to attract funds for 10 years, and the rate paid by Germany which represents the benchmark rate in the eurozone, also rose to 220 basis points or 2.20 percentage points. In the U.S., FBI raids on hedge funds Level Global Investors LP and Diamondback Capital Management LLC to search for documents into possible illegal insider trades is causing stock markets to sell off, which thereby is forcing up the USD. Meanwhile, the CAD was one of the only currencies to buck the trend as domestic inflation rate in October jumped to a two-year high. Canada's annual inflation rate in October rose to a two-year high of 2.4% from 1.9% in September on higher prices for gasoline and energy. This data is causing the market to rethink the Bank of Canada's stance and could prompt the BOC to raise interest rates sooner than expected.
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