Key News
* U.S. Economy: Consumer Spending, Confidence Fall on Job Worries (Bloomberg)
* U.K. Nationwide House Prices Post First Annual Gain Since 2008 (Bloomberg)
* China Will Sustain Growth Rebound, Central Bank Says (Bloomberg)
* Fed Ends Treasury Buys That Capped Rates, Stabilized Housing (Bloomberg)
The Event Agenda
Morning Run-Down
The Pavlovians that have systematically bought the dip and been immediately rewarded over past months are in for some punishment. Yesterday’s aggressive retracement following a fairly meaningless GDP report likely got them even more aggressive and convicted– perhaps even more inclined to keep adding into stock market weakness.
But the trends have broken and the risk environment has changed. All of the sudden people fell less comfortable about the state of the world, more concerned about sustainability of growth.
The VIX, a proxy for traders’ perception of risk and uncertainty, is up 54% in six days. The VIX is the one place that offered the best risk/reward opportunity for a double. Market participants clearly were underpricing risk as every tick higher in stocks translated into more optimism about recovery and a lower moving VIX.
A falling stock market can quickly dismiss blind optimism and bring the reality of the challenges to global economies back into focus. That means higher risk aversion, lower stocks, lower commodities and a stronger dollar.
Here is a snapshot of markets going into the close…
Stocks (lines 1-3) followed the biggest rally since July with the biggest sell-off since July. Crude oil (line 4) fully retraced yesterday’s strength, now 6% off of last week’s highs. Commodity currencies and yen crosses were the biggest currency movers of the day, reflective of global demand concerns and rising risk.
Here’s a look at some long term charts for perspective on the crisis-driven declines and the extent of retracements over the past eight months…
Key Charts
The S&P 500 dropped 58% from its highs in 2007 to its low in 2008. Even following a 65% rise from the bottom, stocks remain in a long term downtrend.
The New Zealand dollar contracted at a sharper rate than the US economy and is expected to have a weaker recovery in 2010, yet the New Zealand dollar retraced 83% of its crisis driven losses in just eight months. Look out below.
Though commodities have had a shallow bounce off of the bottom, global demand remains massively depressed.
The VIX (the fear gauge) settled in to pre-Lehman levels and is now surging higher.
{ 2 comments… read them below or add one }
I enjoyed this blog very much
I am interested in the factors that can affect specific currencies, in particular today, the pound. Micro-cracks in a dike can seem like nothing for a while, but they can add up if not dealt with. The government in Britain, and its wired-in cohort (let’s call them the cream for purposes of this comment) can be doing one thing, while the milk (the people who would find the cream in accessible through the mixed bits between cream and milk) can be doing something else again. So, a British town called Todmorden is celebrated on YouTube as having got somewhere near net-plus (as opposed to the rather less ambitious goal of net-zero). It is my understanding, from following the resilience movement (Rob Hopkins, found on TED if g-searched) and others, that similar things are going on among the milk in countries like Argentina and Zimbabwe and even more obscure places, like Ecuador and the Kurdish area of Iraq. In addition, when the establishment currencies seem suspect or unavailable to little people, little people frequently invent their own currencies. So, we have a private currency in Germany being used in some schools, with a proposal for a similar issue in Australia. Neither Germany nor Australia are marginalized countries, but little people are found everywhere, really, though they may have more or less probability of coming up high on the page in a net search. I am somewhat perplexed about how to think of investing in currency without considering the issues of advanced adopters, tsunamis of change, and tipping points and all that. Is this a matter you might be interested in addressing, or am I too out there? It seems to me that the measured UK economy will shrink if the milk withdraws from the formal mix. Thanks for reading.