With the confluence of the Fed’s anticipated return to interest rate rises and other global forces – commodities tanking, and a blow-up in junk bond yields – this was never going to be an easy week.
Macquarie Research, in a note to clients issued yesterday, starts by repeating a question that’s getting asked in some quarters: “Is it Bear Stearns moment?”
Our recent client meetings also indicate that investors currently suffer from an exceptionally high level of anxiety, with limited conviction on any of the key trade ideas (DM vs EM; US$ vs the rest; commodities; NE Asia vs ASEAN; sector rotation etc). Whilst our year-end marketing in prior years has almost always yielded at least some strong investor views (such as very positive on India; negative on China; negative EM; positive US$ etc), conviction levels are now among the weakest we have seen since at least ‘08-09.
The spike in junk bond yields on US debt markets last week, which was met by the extraordinary moves from two large funds to stop client withdrawals, has got fund managers particularly jumpy.
Investors also witnessed an accelerated decline in the entire commodities complex (undermining consensus view that base comparison would support inflationary outcomes later in ‘16). Finally, as we approach the Fed’s rate decision, investors are experiencing volatility in the high yield market, prompting speculation that a significant jump in spreads (particularly at the risky end of the high yield market as well as for commodities) is equivalent to the collapse of Bear Stearns funds in 07/08, a precursor of GFC.
And it’s only Tuesday.