Citi Battens Down The Hatches, Prepares For Global Risk Offness In A Few Short Hours

Sunday, August 7, 2011
By Paul Martin

by Tyler Durden

Citi’s head FX guy Steven Englander is barely back to the US, and already is pouring the daily dose of fire and brimstone (much deserved) into a market that after nearly 2.5 years of unprecedented complicity, is about to realize that every escalator action has an equal and opposite express elevator reaction (oh, and those same HFTs that make money in an upward momentum environment, are just as effective at putting a minus sign in front of all their signals, wink wink). Some key soundbites from his just released note on what to expect (spoiler alert: nothing good): “The accelerated timing is a surprise and comes at a point at which global market sentiment is extremely weak, so it seems more likely that the reaction in markets will be negative than positive” …”there may be concern in FX markets that the EUR AAAs are not solid, given the political and economic issues facing the euro zone and how conditions have worsened since the agencies last commented on ratings”…”a downward shock to markets is likely to be USD positive in the near term. This is hardly USD positive once things settle down, but before they settle down, the short term will likely dominate the long-term”…”The odds are that the week will start with FX investors challenging the SNB and MoF to intervene in size”… most importantly, why Europe is sweating bullets after the last bailout attempt announced from Friday has now gone up in flames and the EFSF is seen as being on edge of functionality: “In terms of FX market impact, the biggest would come from a downgrade of one of the AAA eurozone countries who back the EFSF’s AAA rating. This would mean either dropping the EFSF AAA or increasing the contributions of the remaining AAA.”and on the topic of everyone’s most favorite Federal Reserve: “A Fed response is likely to emerge only if there is turmoil in markets.” And here we were warning anyone who cared to listen that the Fed needs a 25% correction before QE3 comes. Well, you may just get it very soon.

Full observations:

Broad market reaction the key

The Rest…HERE

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