Trader: ‘Risk Assets Are Ripe For A Correction’ And This Gives Them An Excuse

Not everyone is concerned about Kim Jong Un’s “gift packages” for “American bastards.”

Yes, a rogue, hermit state now has an ICBM it says is capable of carrying a nuke.

And yes, its leader wants to develop the capability to strike the US mainland by year-end.

And no, it’s not clear that everyone in Pyongyang is in full possession of their faculties (see the general in the background below – the picture is from Tuesday):

boom

But if you can just look past that (and also look past Syria, and Iraq, and Yemen, and the Qatar rift, and Ukraine, and Libya), then there’s every reason to buy USDJPY on dips. Just look at the overnight action.

One person who isn’t so sure that this will all end without an “accident” in overvalued risk assets is former FX trader Mark Cudmore. Of course Mark being Mark, he’s still “structurally bullish,” but the following assessment (out earlier today) is worth a quick skim…

Via Bloomberg

North Korea an Excuse for a Period of Risk Aversion: Macro View

Many risk assets are ripe for a correction from elevated levels and North Korea’s latest provocation provides sufficient excuse for traders to act.

  • North Korea’s missile tests have been ignored all year, so why is this time different? Partially because diplomatic solutions are making no progress and so a U.S. military response is becoming more likely. But, more importantly, it’s raising tensions between China and the U.S.
  • That latter point is far more critical in the immediate-term. It comes just ahead of a G-20 that was already expected to be fractious, and in the context of potential U.S.-imposed metal tariffs triggering a trade spat
  • Most equity markets are trading close to record highs, but there are suddenly signs of vulnerability: bellwether tech stocks in the U.S. and Asia are getting hurt, while risk-parity strategies are also suffering a setback after a strong run

Risk

  • There’s a new market narrative that many major central banks are turning hawkish in deliberate coordination. What that really means in terms of actual liquidity reduction still has to be seen. But, after such a good run, the macro backdrop suggests profit-taking may be a tempting option
  • I remain structurally bullish: the global economy is growing solidly and, for now, there remains excessive liquidity. But this doesn’t mean there can’t be meaningful pullbacks
  • With Asia-related trade tensions the glaring risk from G-20, assets like Hong Kong stocks and the Australian dollar may bear the brunt of any stress
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s