Uh oh

China stocks down 8% at the time of writing, yen and CHF mysteriously bid. Looks like a (mini) bout of risk aversion is upon us. Macro Man is likely to be busy today with meetings, so he wanted to get in a quickie this morning.

At this point he is uncertain of the extent of the risk aversion event, only that large (negative) moves in uber-speculative assets are generally consistent with broad trimming of risk. That these moves are occuring in spite of the recent Treasury rally is particularly interesting; perhaps fears are mounting of a growth scare as the subprime mess hits the front page of main street, rather than just the Wall Street, journals?

Regardless, some further hedging/trimming would appear appropriate.

He therefore sells 15 million NZD/CHF at 0.8683 (0.86815 to 02 March) and buys $10 million USD/ZAR at 7.1220 (7.1229 to 02 March.)

Hopefully, more to come later.
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wcw
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February 27, 2007 at 8:29 AM ×

How 'bout that Yen/$, huh?

I'm not sure this is risk aversion of itself. The USD is getting pummeled across my screen just now, and viz ES. I think someone decided durable goods, consumer confidence and/or (my big bet) existing home sales will be fugly. This is a US story to me. In the end that's a risk-aversion play as well, but still.

Funny how my high-2s Q4 GDP call now looks to be overoptimistic after initially appearing a huge undershoot. H2 is a ways off yet.

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Macro Man
admin
February 27, 2007 at 8:43 AM ×

I think what you find in these circumstances is that what starts out as an isolated US event swiftly impacts the ROW.

The fact that USD/TRY, USD/ZAR, and even non carry junk like EUR/CZK are all up on the day is suggestive of a degree of risk aversion. Certainly there appears to be a fair amount of 'wtf?!?!' going on in the street.

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wcw
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February 27, 2007 at 2:23 PM ×

As often is the case, we don't actually disagree much, if at all. I posted that right before bed, and I am no longer sure it makes sense. While market action could fit both with a risk-aversion move or with the US putting the "landing" into "soft landing", the moves in carry to suggest more your scenario a) than c) from the next post.

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