Yet more carnage in the major asset markets today as GFC II gets into full swing. Among the catalysts for this latest episode of risk ejection were another series of very poor PMIs out of China, the UK and Germany, together with some dreadful unemployment news from Italy and growing fears that Spain’s banking crisis has now reached the point of no return.
Risk assets and currencies have continued to haemorrhage. Brent crude fell below USD 100 today to a 14m low, a decline of 20% in the past two months. European equities continue to get hammered – the DAX has dropped 2.5% (a decline this quarter of more than 12%), the Euro Stoxx 50 has lost 16% in Q2, while Spain’s IBEX 35 has fallen by almost one quarter. High-beta currencies such as the Aussie and most Asian currencies remain beset by intense selling pressure – the former is now at 0.9650, a decline of nearly 11% in the past three months, while the Indian rupee fell to a new record low against the dollar and has now declined for nine weeks running.
Meanwhile, both the dollar and the Japanese yen are in peak demand. The dollar index has jumped 6% in the past five weeks. Not to be outdone, USD/JPY has fallen to near 78.0 today, its lowest since mid February. New record lows in 10yr bond yields have been recorded in the US, the UK, Germany, France, the Netherlands, Austria and Denmark. In both Denmark and Germany, the 2yr yield traded below zero today. Spanish 5yr credit default swaps registered a record high today of 607bp.
When the tide is this strong, there is no point in swimming against it – simply get in your lifeboat, and hope for the best.