In a testament to the fact that, contrary to what Mario Draghi said in Washington last weekend, investors do not in fact believe that stocks can go down as well as up, there’s a mad scramble on Thursday morning to explain what, generally speaking, is a pretty mild decline in global risk assets.
U.S. investors woke up to a sea of red in Europe and also to a sharp decline in the Hang Seng that unfolded in the final minutes of trading and the chatter pretty clearly suggests that everyone is having a Captain Picard moment:
“Explanations” range from the plausible (Catalonia) to the conspiratorial (it’s all about the Black Monday anniversary) and some folks think maybe it would have been better if the PBoC’s Zhou Xiaochuan hadn’t said “Minksy moment” overnight on the sidelines of the Party Congress.
It seems more than a little suspect to suggest that Spain and Catalonia aren’t the proximate cause here. I mean, the worst case scenario has indeed materialized and while it’s difficult to sort things out because Europe was just opening when the news started to hit, euro breakup risk is back on the table and no one likes that – especially not a week ahead of an ECB meeting when Draghi is expected to outline the exit strategy albeit while simultaneously announcing the extension of the program.
“Funnily enough, for those still parsing overnight news for what matters most, I wouldn’t blame Catalonia,” Bloomberg’s Paul Dobson muses, adding that “Spain’s 10-year bonds have erased all their intraday declines and the spread versus German bunds is back to unchanged. For jaded, traders it’s becoming more like Cata-groan-ia.”
Maybe. But maybe Spanish bonds aren’t the best measure here. After all, they have an implicit guarantee from the ECB – “Whatever it takes” and all the money printing that comes with it.