Bounce Tuesday was a bit of a damp squib and today looks as though the wheels are coming loose again. The Beard has shot a few QE3ers, SPX appears to have confirmed the 1290 break and USDJPY is threatening to apply the red hot poker to a few derrieres. It had been looking equity-led up till now, but at last other assets are joining the fray. Key levels are under threat in various places but especially noticable is the break in European banking stocks.
Last week's thoughts on commodity currencies appear to be playing out. The seemingly bulletproof trading in anything which exports rocks and has a high coupon is softening along with noise about debt ceilings, eurowoes and the general slowing down of data. No doubt with the China "muni" stuff going tabloid your average carry junkie is being jolted awake by bad dreams of mid 2008. The only commodity currency to survive pretty unscathed is NZD, which could be read as indicative of a market that is not actively going short commodities and the associated FX, but just getting out of those monster longs. TMM believe that, outside New Zealand and Japan, it is pretty rare to find anyone who ever actively goes long NZD, with the chosen positions either being short or flat. Therefore, there are minimal speculative long positions to be unwound. TMM would expect any distressed NZD selling to therefore appear through the JPY crosses, when Mrs Watanabe and her Women's Institute carry club have to press the stop loss button. So if/when NZD falls over we will know that these moves are beyond just a commodity positional washout.
TMM note that the trend for the newswires to collar junior desk jockeys at quotable institutions continues. After yesterday's personal comments from a teaboy at SAFE, they managed to collar a clerk at Moody's and have her say that if something happened, something else could happen and finally that COULD mean that the UK's AAA rating MAY be under threat and would you like milk and sugar? Which had the grown-ups at Moody's swiftly apologising and offering to clear up the mess their kid had caused. These guys really ought to be closed down, but more on that tomorrow.
Right - back to work, as we happily watch commodity currencies go down the pan.
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