Markets are in risk-off mode today in U.S. trading — risk assets like stocks are down and safe havens like Treasuries are up.
Meanwhile, there are a ton of big moves happening in currency markets around the world — especially in some notable emerging markets like South Africa and Turkey, both of which are dealing with idiosyncratic problems of their own.
This leads Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus, to wonder: is today’s sell-off in the U.S. 75% macro and 25% micro?
“I have to think there is a pileup of FX margin calls happening which is causing angst,” says Lutz in an email.
He offers another curious explanation, too: “Maybe El-Erian’s departure is having some impacts here as well.”
On Tuesday, it was announced that Mohamed El-Erian, CEO of PIMCO, would be leaving the firm in March.
PIMCO co-founder and chief investment officer Bill Gross said in an interview Wednesday he was shocked and discouraged when he heard the news.
What does that have to do with today’s market action?
Lutz points to commentary from the emerging markets desk at Mizuho Securities: “Yet to be factored in, perhaps, is the negative surprise of Mr. El-Erian’s departure from PIMCO — say what you will about that firm’s self-serving pandering to CNBC audiences, but now gone is a loud and cash-rich supporter of the concept of diversification into emerging markets, and we are bound to be the worse for it. Call it the PIMCO taper: they don’t have to sell — they just have to stop buying hand over fist — for the markets to feel a tightening. Look out below.”
This is certainly the first example we’ve seen of anyone ascribing market movements to the El-Erian news.