It is early in the Asian morning session and the mood is decidedly like that in late September, early October of 2008, when every day felt like it could be liquidity's last. And while we have long discussed that the "liquidity"situation in equities is laughable, with May 6th confirming our concerns, tonight we are seeing, for the first time, the evaporation of liquidity from the FX market, where tight bid/ask spreads are needed for proper market functioning. The EURUSD and EURJPY as well as various cable pairs are plunging, taking out massive 10 pip steps lower with every block, something unseen since the Lehman collapse. Furthermore, with funds anticipating something, anything out of Europe this weekend after the major move down in the euro last week, and the disappointing silence out of both Brussels and Luxembourg, the EUR will likely test the next support of 1.18.
The much more critical for American stocks EURJPY pair is also getting trounced as "risk off" is now on.
And with realized vol exploding to weekly changes not seen in over one year, last week's rumors of massive carnage as the key FX desks are becoming ever louder. We would not be surprised if tomorrow we discover that a liquidity crisis has struck at some major hedge funds and prop desks. Surely, the implosion of a TBTF FX desk would only make the Volcker case that much stronger.
It appears that tonight the LBMA is too busy with putting out other fires than to worry about a surging gold. At last check it was back on its way to retest $1,250. So the very same conditions that pushed gold higher today, were responsible for it plunging on Friday... The intervention (and lack thereof) is just getting far too blatant.
As for index futures, we won't bother you with those as we expect the Liberty 33 night shift to take over around 3 am and to make a spirited attempt at a green open. However, for now everything is solidly 1%+ down. So much for that 1,000 point/limit up bounce on the European "bailout."