With VIX hovering below 12 still – despite a surge in realized volatility to its highest levels since the election – investors seem very confident that no matter what happens this weekend (or next), everything will be awesome. As former fund manager Richard Breslow warns however, "for traders, the two items with the biggest potential lasting effects are virtually impossible to handicap…And to make matters worse, we won’t know their punch-line until the weekend: when markets are closed for business."
Via Bloomberg,
I’m referring, of course to the North Korean threats of another missile launch as part of marking their nation’s founding and the massive hurricanes bearing down on the east coast of the U.S.
Now, how are you left as you think about taking a position home Friday night?
And it’s vital to be very circumspect in ascribing causality to market moves as we struggle to manage, adjust or, even, ignore the risks surrounding these events. Traders are trying to figure out how to survive, even more than thrive, with the realization that Monday could look very different from Friday — however things turn out.
It’s likely that we’ll try to carry on with the established trends for the balance of this week, as that seems to be the path of least resistance. But in a world where trying to pick a market turn is the most popular parlor game out there, it could end up being a very busy start to next week. Treasury yield at 2.08% could look either very cheap or dear, depending. Same for the dollar, gold, and so on.
I would strongly advise against throwing around words about risk on or off, safe havens, reassessments, and the like. They are meaningless in this instance. The best you can do is observe how positions are being tweaked. And try to get a sense of which way around are all the marginal positions. It’s a purer way than making a big deal about stale CFTC data.
And, please, don’t cry “eureka” and announce that you’ve discovered a new safe haven because it’s suddenly occurred to you that the renminbi has been trending for the last four months or that Canadian numbers have been consistently beating official, as well as private, forecasts.
You’re all excited about the start of the NFL season, but there could be a lot of people more intent on counting down to the Wellington open.
In the meantime, cross-asset volatility is picking up ominously…
But for now, only the FX markets are truly concerned…
via http://ift.tt/2ja1B9x Tyler Durden