Markets Shift to Risk-Off

Andamento del mercato - 12/05/2015

With US stocks having given up all the post-NFP exuberance that lifted equity benchmarks higher, the quick retracement lower today coupled with the dramatic rally in risk-aversion assets shows that investors are shifting sentiment at an increasingly frenetic pace. Although there is no clear catalyst for the recent reversal in momentum, there are several theories, including today’s IMF repayment from Greece after which the fund told European creditors it has no plans to participate in any future bailouts for Greece. Greece managed to punt default a month down the road by using its IMF SDR reserves to repay the IMF. However, these funds must be replenished within a month according to existing regulations. IMF Managing Director Christine Lagarde knows this is an impossibility, hence the warning that the group no longer intends to aid the beleaguered nation.


Curiously, the JPY funded carry-trades are presently in the process of unwinding, led by losses in EURJPY with USDJPY increasingly mimicking the move, even if relatively late. Although the US dollar is beginning to gain on the back of weakness in major peers, the real reflection of the risk aversion came in the Swiss Franc and precious metals, although gold prices have been quick to reverse lower after the ascension of the US dollar. The losses in equities are more startling with European benchmarks all deep in negative territory, with majors losing in excess of 1% apiece. A risk-reversal is unlikely at this point with little relevant economic data due out today before the US government spending figures and a speech from RBNZ Governor Wheeler. Expect risk-assets to continue tumbling in the near-term. Many of the affected risk-assets that had pulled back from losses after rebounding modestly have since been back on the slide as momentum looks set to continue.

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