Talking Points:
• Equities suffered a sharp tumble Tuesday that signaled a distinct 'risk aversion' move from the financial markets
• Finding a trend in stocks, Yen crosses, Euro and other risk-sensitive assets will be difficult but not impossible
• Top event risk ahead is the RBNZ rate decision, and there are more than a few well-positioned Kiwi pairs
A steep drop in global stock markets drew global macro traders' attention to a wider 'risk aversion' sentiment in the financial system. Deeper declines in more extreme assets like high-yield fixed income, a slide in Yen crosses and event a rebound from the Euro confirm the view. While the move had the breadth and the intensity to seemingly presage a deeper change in appetite and positioning, circumstances - like the Fed anxiety, seasonal liquidity drain, and fundamental disparity - will work against it building a head of steam and unleashing its enormous potential. Of course, it is important to be prepared for the unexpected. In the meantime, discrete event risk in the RBNZ rate decision is dead ahead; and there are a range of Kiwi pairs that have unique and attractive technical or fundamental characteristics.
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