03 July 2013
"Market Tension Indicator" in action: from May 22nd to June 28th
Bernanke's announcement on May 22nd that the FED was likely to taper its bond buying program (QE3) triggered a market sell off.
The June 19 FOMC statement continued to fuel the downward spiral. First to be impacted were Emerging markets:
- The EM Market Tension Indicator (MTI) reacted violently on May 29 as pressures mounted and our indicator pointed towards a risky regime. FX volatility was the first to spike with heightened uncertainty around China only adding to the fire and provoking violent rotation in capital flows for both equities (Asia) and bonds (Asia and LatAm).
- The increase in risk aversion then took its toll on emerging market govie and corporate spreads.
- Contagion continued to spread to our Global MTI which hit risky territory on June 11 due to increasing global volatility and EM spreads.
- Bernanke's press conference on June 19 led to US markets also being impacted and reacting to the threat of higher interest rates and the potential impact on global growth..
Surprisingly, European market tension indicators remained relatively immune to the market sell off which clearly demonstrates the need to discriminate among MTI geographies.
Source : Seeyond
Written on 03 July 2013