What next?

So what next? With equities having broken the support on their trend line
and Natixis and KBC in particular showing that there is still room for nasties to be disclosed…and to surprise. With recent earnings being not so good (see the above and add to that list TKA, ACA, BT to name a few) and some realistic comments coming out of Mervyn King in the Inflation Report, along with the poor MBA mortgage apps and Retail Sales numbers in the US yesterday, risk appetite has diminished quite significantly. The US data certainly caught many unaware and they provided fodder for the bears and took a first swing of the scythe to the Gr**n Sh**ts brigade (I just can’t bring myself to write that phrase).

The $ has rallied, as have bonds, commodities fallen (note oil fell despite a very big draw in the DOE data yesterday). Back to good old predictability again. Vols are still low although VIX did bounce 6% yesterday but the manner in which we are selling off is a lot more controlled than we’ve been used to over the past 18 months. I’ve said before I expect vols to remain low, certainly on a relative basis to what we’ve known throughout the crisis, and I continue to believe that. So basically, I think we drift and the sector rotation talked about yesterday follows.

The market did make an abortive effort at a bounce earlier on a report in NZZ (I’d post the link but it’s in German) that the Swiss government was considering exiting its position in UBS when the lock up ends on June 9. Now the first reaction was they would do this because UBS is in ok shape and doesn’t need the government investment, hence a big rally in the stock. I wonder though if that is the reason. I mean I doubt it can be. So perhaps it’s because of the massive rally we’ve seen and they want to look at exiting? I’m not sure about this either. What is for sure is that there has been a lot of social discontent in Switzerland regarding UBS, its losses and the Government’s role. It could well be something they’ve been looking to exit asap once they realised the public outcry. Also, bear in mind that with the Government stake, UBS have not been able to pay people and are losing key players to the competition. It could well be a solution that suits all involved…Ich weiß nicht.