Wednesday, September 14, 2011

Uncertainty in Europe...

Market correlations go to 90% as the uncertainty surrounding europe remains.
The sp500 has been capped at 1190 and well bid at 1120, however the risk currencies AUD and EURO have both been getting hurt due to the increasing demand for safety in the USD. Whilst the past two years of forex in AUD and EURO have been quite a good indicator of the risk-aversion trade - the bottoming of the USD may see a change in the trend.
In either case, the market is not in healthy form as the sell-off days are still higher on volume and the ranges of the days are much higher than they've been in the past 2 years.

The equity markets have been volatile, but not in a complete sell-off, I presume valuations will matter in the coming weeks as correlations come back off, and the macro catalyst will actually be a resolve of Greece - even a default which eliminates Greece will actually be a positive for the markets as the yields will stabilise and markets will probably be more happy with certainty of the news. As long as there is no mass default in Europe, things will be business as usual.

Last night we saw some comments of support for the euro by the BRICs (Brazil, Russia, India, China), however the bearish tone may remain for a few more weeks.