From ZeroHedge:
Yesterday's violent US selloff was so sharp that US stocks are now back to where they were in the middle of January after peaking in September. And as noted earlier, the rout has spread with stock markets in the rest of the world following lower.
Meanwhile, as Nomura's Bilal Hafeez noted last Friday, the key markets to focus on after the real yield shock were FANG stocks and credit: sure enough, both markets have now tumbled, with US HY spreads widening sharply..
... and the outperforming US sectors incorporating FANGs have all tumbled with the defensive health sector now the top performer in the US.
***Fast forward to today, when in his latest note, the Nomura strategist writes that the bank's cross-market risk monitor is now clearly in risk aversion led by these markets, but what stands out is the lack of response from EM, which is not in “risk aversion”.
Indeed, the top performing currencies today are TRY and ZAR. This suggests that EM may have already suffered its “risk aversion” over the summer and now it's the turn of DM – first it was Italy, and now it is FANGs and DM credit. In this environment, the yen should perform well (see our notes in recent weeks) especially with oil markets losing momentum....MORE
So having correctly spotted the usual suspects behind the latest rout, what does Hafeez think could stop this equity (and credit) sell-off? He believes that the following three things could make a difference:
- The Fed could provide some comfort to markets. They could acknowledge the deterioration in financial conditions and soften their hawkish tone. The Fed’s recent rhetoric suggests this is unlikely, but a combination of the scale of the moves and even President Trump’s vocal criticism’s may influence them.
- De-escalate the US-China trade/investment/tech war. There has been a notable ramping up of US rhetoric against China (see attached email). This has clearly spooked markets – just as the threat of limiting Chinese investment in US tech did earlier this year. Given the energy the US administration has devoted to this in recent weeks, a de-escalation seems unlikely....
