Equity selling – Monday and yesterday: The rout has some more to puke but FX doesn’t care.

Let’s be clear this is not a proper RISK OFF move. It has been confined to stocks. Even USDJPY is holding the 108 big fig – The BOJ and 10 year yields capping at .1% (as previously mentioned) might of course be helping.

Anyway, risk parity hedge funds are often the blame but it doesn’t matter. When VIX spikes and a quant fund dumps one asset but levers the others it often prevents contagion and spillover. Which is basically what you are seeing right now.  Look at CDS market – not bothered. Look at high yield credit spreads ? Not bothered.

Fundamentals are sound but dip buyers are hurting so another shakedown could be done to flush out the weak over-leveraged longs

Why did this all start ?

NFP and firm wages (forgetting the headline) means more money in pockets. More money means more spending, more spending means higher prices. Higher prices means higher CPI. Inflation fears then grew and the companies in listings saw that their profits/divvies would suffer. Or so the story goes. Also, 5 year breakevens at highs but US 10 year needs to stay below 3% to cap any PROPER correction. If that blows this month Monday and yesterday will look like a walk in the park.

Tell me I’m wrong ?

Patrick Reid

Patrick Reid

Swapped the TV screens for the trading screens.
Philosophy: "Define your risk, only then can you ignore it"

Read how Patrick got into trading here
Patrick Reid

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