With no end in sight to the euro zone debt crisis, events in Athens and Rome are likely to dominate investor sentiment over the coming days.
Whether it is Berlusconi hanging onto power or the talks over forming a new government in Greece, it will be impossible to ignore the euro zone debt crisis.
Analysts at HSBC have been looking at what they call the "risk on – risk off paradigm" which they believe has been the dominant feature of the market since the start of the financial crisis back in 2007. Their analysis does not make good reading, unless you are betting on risk off.“The recent events in the euro zone have caused the risk on – risk off paradigm to strengthen even further. Over the last week it has almost become a caricature of itself: we saw extreme euphoria on the back of a purported bailout package followed days later by intense despair induced by the prospect of a Greek referendum," said David Bloom, Global Head of FX Strategy at HSBC in a research note.“These dramatic shifts in sentiment led to rollercoaster moves in risk asset prices," Bloom said.With cross-asset correlations at an all-time high according to HSBC, Bloom says market participants are comparing the current Greek crisis to Lehman Brothers and has this warning for investors: “Market stresses are currently far worse than after Lehman and the event which people are worried about has not even happened yet!"...MORE