On The Brink11.23.2011
Just three years ago, the United States was on the verge of a complete financial meltdown. Today, it’s the European Union that’s about to suffer the same fate.
The Euro hit a low of 1.334 on Wednesday and took U.S. equities down with it, with the Dow Jones Industrial Average fast approaching the 10,000 level. Traders, in turn, are spooked (and rightly so).
“Volatility is leading us,” Wesley Harr, a trader for stockMONSTER, told Markets Media. “Anticipation of lack of volatility has lead to low volatility and a crush of premium across the board in derivatives.”
The CBOE Volatility Index (VIX) is expected to continue to rise as the situation in Europe deteriorates. A failed bund auction by Germany on Wednesday freaked out most market participants, signaling that even one of the world’s most fiscally sound and responsible countries is at risk. Yields on the ten year German bond rose above 2%.
“Euro zone fears are spreading after today’s terrible German 10 year auction,” Evan McDaniel, an independent proprietary trader, told Markets Media. “This is the largest spread between the German 10 year and the U.S. 10 year in two-and-a-half years. This is what is sending euro bids below the 1.34 metric.”
With Zoe Zhang and Richard Knight, Execution Quant Group, CLSA
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