What Is The Source Of Today's Buying Panic: RBC Explains

From RBC's Charlie McElligott

The Dollar is near session lows with other safe havens currencies (Franc and Yen the only other G10 FX that are lower this morning), helping everything from EM to crude to iron ore to Sterling “get legs” overnight (despite the UK sovereign downgrade at that).  Similarly, USTs and core EGBs are at their lows, while the riskiest EU credits (Xover -20.5bps) saw a nice gap tighter.  The Asian equities session was tepid, but we currently see EU stocks enjoying a sizeable relief rally, with the largest returns being intuitively seen in the periphery states (Italy +3.4%) and banks (SX7E +3.5%).   For what it’s worth, the buying in high risk periphery and banks is not “real money” nor is it on any real volume (which thus smells of short covering), while most of our real buying is a downshift in risk-profile from long onlys who have to be invested and are loading the boat in obvious sectors like utilities today.

Nonetheless, boosting the modest risk-asset short-covering tailwind are #Yentervention hopes, where the following headline hit at 5:45am EST, sending JPY to overnight highs *JAPAN GOVT, BOJ TO HOLD MEETING TO DISCUSS MARKET MOVES WEDNESDAY MORNING – SOURCE.  They darn-well better, because yields on 10, 20, 30 and 40 year JGBs all dropped to fresh record lows overnight, and it is now assumed that additional easing at the July meeting is inevitable, and that it has to be something fierce (FISCAL STIMULUS—see more below--along with massive ETF buying), or else market forces will continue to shoot-against the BoJ.  Finally, another weaker Yuan fix, lowest vs the Dollar since ’10.

YUAN FIX FINALLY CRACKS LOWER RELATIVELY TO THE ONE-WAY WEAKER TRADE IN THE BASKET: