Dubai Financial Crisis

Written by Research | 27 November 2009

Ripple effects on the Markets

The breaking news from the United Arab Emirates in Dubai had made the market jittery again as the financial crisis on defered payment on a 60 Billion loans and its up and coming maturities roughly $3.5 billion Islamic bond coming due in December and now have rippled into the markets worldwide.

The markets reacted in shock to what some analysts indicated amounted to a possible default on payments by Dubai World. Inspite of the assurances of the leaders like Sheik Mohammed bin Rashid Al-Maktoum stated that it was a decisive business decision that hads to made. This had made a dramatic effect on the Thanksgiving holiday market was closed in the United States.

Although, the annoucemnt made in Dubai was just ahead of their coming holiday period as well which is on the eve of a three-day Islamic feast. A top Dubai finance official said the emirate fully expected a defer from its debt problems and assured foreign creditors that Dubai World's request to postpone payment on some of its $60 billion in debt was "carefully planned."

Meanwhile, U.S. and emerging-market stocks slumped and commodities dropped the most since July as Dubai’s attempt to delay debt repayments unnerved investors. Treasuries and the dollar rose while credit-default swaps surged as would be speculative foresights of analyst have influenced the emerging markets expected could suffer the most because of the biggest gains was made there as stated by a senior strategist at an Investment Management in Copenhagen, which oversees about $220 billion. As some could see quite a substantial amount of institutions and investors cutting any potential losses now than waiting a substantial ripple effect on the market by next week. The doomsday and black Friday scenario is that this could revive the whole financial crisis all over again.

USDX DAILY CHART

Although, the US dollar rose against the euro, regaining back most of its decline this week, as Dubai news sparked demand for and flight to quality dollars which has been the perceived as a safety of the U.S. currency as a safe haven again. The European currency slipped to $1.4905, from $1.5019 yesterday, while the Dollar Index advanced 0.7 percent working at the 75.22 levels as of this writing.

The yen climbed against 15 of the 16 most-traded counterparts. The Japanese and U.S. currencies rose more than 1.3 percent against the Australian dollar and that the speculation that Japan may act to ease the previous gains. Credit-default swaps tied to debt sold by Dubai rose 134 basis points to 675 according to CMA DataVision. The yen also climbed against South Korea’s won and 1.8 percent versus Russia’s ruble. While the Vietnamese Dong was depreciated by the government and sent the financial market on a roller coaster as well.