Risk Off?

Well, well … it seems that the Europe may be important after all or at least that the Greek malaise may be spreading. The EUR/USD at 1.29ish, the AUD/USD looking towards 0.91ish, and all things risky in equity land seems to be entering the room of pain …I will leave it to Mr. Bloomberg for now;

Asian stocks fell, extending the biggest slump in global equities in three months, while the euro and oil dropped on concern Europe’s debt crisis is spreading. Yield premiums on corporate bonds widened the most in 13 months.

The MSCI Asia Pacific excluding Japan Index dropped 1.9 percent to 410.11 as of 12:31 p.m. in Hong Kong. The euro extended declines after weakening below $1.30 for the first time since April 2009. The extra yield investors demand to own company debt instead of U.S. Treasuries climbed 4 basis points as investors shunned higher-yielding assets, while rates on Australian 10-year notes dropped 10 basis points to 5.65 percent. “Investors have clearly shifted their focus from strengthening corporate earnings and an improving macroeconomic backdrop to the problem of sovereign debt,” said Nader Naeimi, a strategist at AMP Capital Investors Ltd. who helps oversee $90 billion for the Sydney-based mutual-funds manager.

More than $1.1 trillion was wiped from the value of global stocks yesterday amid growing expectations that the 110 billion euro ($143 billion) rescue package for Greece will need to be extended to Spain and Portugal. Stocks declines accelerated after Spanish Prime Minister Jose Luis Rodriguez Zapatero called the speculation “complete madness.”

The MSCI World Index of 23 developed nations dropped 0.2 percent after losing 2.6 percent yesterday, the most since Feb. 4, almost eliminating this year’s gains. The MSCI gauge for emerging markets fell 1.3 percent and is now down 1.1 percent for 2010.

Contagion ‘Sword’

All 10 of the industry groups in the MSCI Asia index declined, with more than 18 stocks falling for each that gained. China’s Shanghai Composite Index declined 1.5 percent and Taiwan’s Taiex lost 2.8 percent. Markets in Japan, South Korea and Thailand are closed today.

Futures on the Standard & Poor’s 500 Index fell 0.2 percent. The gauge declined 2.4 percent yesterday. “There is no dispute that risk appetite has come right off with the European worries,” said Prasad Patkar, who helps manage $1.7 billion at Platypus Asset Management Ltd. in Sydney. “Damage caused by contagion is so firmly etched in people’s mind from the dark days of the financial crisis that no one wants to be caught long risk whilst this sword is hanging over our heads.”

So, is it back to the good old risk off (buy the USD) trade here or will there perhaps be real divergence between European and ROW equity/risk performance. Inquiring minds would love to know …


This was a post by Claus Vistesen, who also blogs at his own site Alpha.Sources.

  1. Sam Costanzo says

    Euro in free fall, global equity markets reeling. Confidence in ability of Euro Zone to manage its affairs responsibly has been shattered by months of political charade and denial.

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