When Risk Assets Go Bad

Today sees another reasonably sized risk off. The Indian budget has caused a stir with the deficit due to grow to 6.8% of GDP by 2010 having previously been estimated at 5.5%. Is this the cause for the global sell off? I can’t really see much else out there that could be held responsible and given the market was buoyed significantly on 18th May post the Indian elections and subsequent 17% Sensex rally, it’s not unreasonable to believe it is. Especially as the BRICS are going to lead us out of this, right? So any falter there should have knock on effects.

Markets have been increasingly poised for this sell off too, technicians talking head and shoulders and a the SPX due to test its 200 day MAV c888, so it felt like it wouldn’t take much to move us lower and this has proved to be the case. The outliers to this sell off are China, for whatever reason, and Korea. Forget the missiles launched over the weekend, no one cares about that; Samsung reported positively and it’s 12% of the Kospi and 16% of the Kospi 200. The commodity complex has a carrion stench about it, with oil off 4%, the Kiwi, Loonie and Aussie all being sold and the resource stocks outdoing the lot of them in the race for retrenchment. Within the overall risk off trade, UK assets look particularly vulnerable to me. I’d been of the opinion that the UK could be in a relatively better situation relative to Europe and the US. The recent data has been poor though as I’ve commented on before and I’ve had to re-evaluate that. It looks like the market is too with Cable taking a decent beating and the action seems very much to be sell the rallies. Word on the street is that a UK corporate had a decent amount to buy this AM, providing a tourniquet for the time being. Similarly, EURGBP has rallied in the last week with dips being bought.

As the data continues to confound the Bulls and the NFPs being; shock, horror, not just worse, but worse than the previous month, we starting to see people actively look to get shorter. More and more focus too is being put on the detail of these numbers, highlighting the fewer hours worked, the lower wages and higher savings rate. As previously said, I believed the real sellers were lower down and this seems to be panning out somewhat. Second guessing the market has been a very costly affair for the Bears and confirmation of a trend is what it’s going to take to get them firmly back in the seat.