Things have unravelled quickly, likely a symptom of heavy bullish bets and weaker hands heading for the exits.
More lockdowns in China and the economic implications this will have in terms of mobility knock-on effects ahead of Chinese New Year and increasing push back from Republicans around US President Biden’s stimulus plans, have led to profit-taking across the value/re-opening trade.
With China back in emergency COVID mode, it has rocked the boat pretty violently today.
With few takers on dips, it’s been an open invitation for fast money to test some near-term pain thresholds.
Fitting into the risk-off/profit-taking theme, we are beginning to see some froth come out of the more extended areas of the market, with a number of the retail-focused regions of the market such as Bitcoin.
The broader macro backdrop also looks a little soft with US dollar higher and commodities under pressure, led lower by metals and crude oil.
Currency trader heads are on the headline swivel reports that Italian PM Conte is mulling a general election.
A less-dovish-than-expected European Central Bank (ECB) yesterday (PEPP “need not be used in full”) and headlines this morning about the possibility of an early election in Italy will be weighing on BTPs today.
For the euro, however, the mix is probably neutral for now.
Sterling traders are paying the price today for yesterday’s over-exuberance. What started with some position adjustments ahead of UK retail sales and PMI data has turned into a bit of stop fest, but the danger zone is sub 1.3600.