Last night the Dow had its 7th triple digit loss for 2014, which has to be some sort of record in just 20-odd days of trading.
The catalyst for the selling was weak manufacturing PMI in the US but this simply reinforced the 6-month low in the Chinese manufacturing PMI that was released over the weekend.
But the source of the instability continues to be the unwinding of the capital flows that were caused by the super-low interest rate policies by the Fed, ECB, BoE and BoJ. These saw money flow into emerging markets and away from developed markets, driving currencies such as the Brazilian real, Aussie dollar and others to all-time highs in 2011.
But those flows are being reversed now and Emerging Markets are simply not equipped to cope with the outflow.
It’s what the ANZ calls the reversification trade and it continues in earnest.
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