Monday the market continues to be dominated by fear; the risk index holds at recent highs, driven by high VOL in equities and credit, and contraction in FX market flows.
Despite the Administration downplaying the nationalization of commercial banks, the idea continues to win high-profile converts. It’s now called the Greenspan strategy.
Other periods of peak risk-aversion have been associated with Dollar strength, but some market technicians point to indicators that the USD is beginning to weaken. Being closely tracked is USDCHF which staged a significant drop on Friday. A close below 1.15 would add to a sense of a turn in the general outlook.
The exception to the last point is USD/JPY. The tendency for the JPY to strengthen on a flight to security came to an abrupt end last week, and the currency continues to push toward a breakout above 95/USD. Whenever there is a severe economic weakness the MOF finds a way to weaken the currency. Whether the rally in USDJPY can itself engender a renewed investment flow outward let by the proverbial Japanese housewife remains to be seen. Certainly a round of buying both of US Treasuries and Asian equities could end up being profoundly constructive, coming in at low, low valuations.
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