A Day for Vigilance – “Risk Off”

Good Morning, Friends. With central banks and sovereign wealth funds long more Dollars than they care to be, and with the Eurozone finance ministers posting goose eggs for their efforts in Poland this weekend,  traders might have anticipated that the currencies that have become havens in place of the Swiss Franc, such as the Canadian and Australian Dollars, and the Norwegian Krone, would be appreciating. That hasn’t been the case thus far today.

In particular, the Krone has lost over 2% from its highs versus the Dollar on Friday. This, along with a move higher in Gold, and a rise in bond futures combined with a decent decline in equity futures, suggests that we’re in the throes of a classic “risk off” day. It seems likely to me that people who are losing money, or who are seeing their profits dissipate, will be eager to staunch the bleeding, and then step aside until the FOMC makes its pronouncement on Wednesday afternoon.

The consensus market view is that the FOMC will cut the interest rate it pays banks for their reserves held on deposit at the Fed, let the shorter maturity notes on its balance sheet mature and use the proceeds to buy longer dated notes and bonds (hoping to push longer term rates down) or both. Nobody is sure how, or if, these will actually work, or if they’ll aid the economy, but there will probably be some disappointment (and selling of equities) if nothing occurs.

Best of luck today.

P.S. A moment ago (2:41 EDT),  the Greek Finance Minister announced that the conference call with the Euro finance ministers, the European Central Bank, and the IMF was over, and that an announcement was expected. That could mean good news for Greece, which in turn should be good news of equities, and possibly a catalyst for a “risk on” afternoon rally. 

P.P.S. FX, and equity futures, are more or less 24-hour markets, and the Far East is functioning at this hour (7:25 PM EDT). From 1.3680, the Euro dropped to 1.36 on news that S&P downgraded Italy’s debt a notch, to “A”.  The E-minis went from 1198 to 1187 while I was watching. Given the rebound in the afternoon, I suspect that a lot of traders were looking for some followthrough to the upside, if ony on short covering; that seems less likely now.