Risk Off

Quite some moves we’re seeing today. There are plenty of people asking why we're off 2%. A few months ago, no one would bat an eyelid at a couple percent move in the major indices, but things have changed. Asia performed ok, up c 1% on better business confidence in Japan. Alas, here in Europe we weren’t quite so sanguine and while the IFO expectations produced a better number, the assessment of current conditions did not. Did this cause the sell off? I don’t think so really but it added fuel to the fire. Coming in this morning and some of the tell tale indicators were moving against risk appetite; DXY up, bonds had rallied, oil was off a couple of bucks, yet equities were unch. Something was going to give and in light of those other moves, equities were always going to have the odds stacked against them posting a blue performance. Throw in the World Bank cutting their forecasts for the global economy and there was more negativity for investors to focus on. Even the old bear Prof Roubini came out of hibernation and told us why the market is going to fall (the market is pricing in a strong V shaped recovery and the earnings growth isn’t going to be there so the real economy will provide shocks to the market).

The markets are not exactly voluminous this Monday, with cash at 80% and futures at 70% of 20 day average, according to the UBS Voluminator…and I’m not going to argue with something so aggressively named. I’m not sure there’s much reason to see a big change in that regard over the course of the week because while there are quite a few macro releases, there probably won’t be a huge amount of excitement surrounding them. The ECB refi facility should garner some interest I guess but I don’t think it will be all that some are making it out to be. Outside of that, we have the Existing Home sales tomorrow, Durable Goods, (which is probably the most important number of the week) and mortgage apps on Wednesday. These will be followed by the FOMC decision, although all eyes will be on the statement as there won’t be a change to rates. GDP figures come on Thursday and Friday sees the Personal Income and Spending numbers which should provide more ammo for the inflation/deflation debate.

Overall though, equities feel muted and heavy and with, to name but a couple of things, the recent data confounding the recovery argument somewhat (see today’s UK house price release) and the elevated level of insiders selling stock (highest level since Bear Stearns, I have read), I see no reason to be anything other than bearish; and at this point it looks like this view is starting to play out. We’ll just have to wait and see if it gains traction.