Risky business

Is the risky asset sell-off beginning? As he heads off on holiday, Macro Man's financial distress seismograph is beginning to twitch. OK, some of that may be related to the execrable performance of the portfolio over the past couple of weeks, but the tremors emanating from popular EM and low liquidity trades is peculiar.

Obviously, the Thai fiasco sent the proverbial cat amongst the Asian equity pigeons. Today, however, has seen the ratings agencies drop a couple of hammers: S&P has downgraded Iceland, and Moody's has downgraded Hungary.

Now, it really begs the question of what the hell these guys have waited for, as 3pm London time the working day before Christmas is perhaps the worst possible time of the entire year to deliver this news, unless these guys wanted to make a market impact. But hey, they are ratings agencies- they're whiter than white, right? Right?

In any event, those long ISK in particular have found their Christmas stockings stuffed with lumps of coal, as EUR/ISK rose 4% at one point today, though has subsequently retraced a bit. The HUF downgrade was not altogether unexpected, though the timing of course leaves something to be desired.

In any case, Macro Man cannot help but think that today's downgrades raise the spectre of something akin to what we saw last spring. NZD, the flightless bird, remains airborne despite slowing growth. An unwinding of risk trades will bring it back to earth. Macro Man will therefore raise a shotgun and take aim, selling 20 million NZD/USD at 0.6992 spot basis (0.6977 to 2 February).