What’s spooked the markets?

Stock markets tanked yesterday, with triple-digit losses all over the shop. Why? As my colleague David Stevenson always puts it: “More sellers than buyers.”

There are plenty of good reasons for markets to fall. The fear factor over Greece and the eurozone was the one being blamed for yesterday’s plunge. “It’s a bloodbath out there and Greece is to blame. This theme of sovereign debt risk is rife and at the forefront of investors’ concerns,” one Neil Mackinnon of VTB Capital told The Times.

While the Greek president and his government were reassuring the EU that they could slash their deficit by unprecedented levels, the population was begging to differ. Customs officials and tax collectors went on strike (although given Greece’s endemic tax dodging, maybe no one will notice). The euro also tanked against most major currencies, which is nice for anyone who was shorting it.

But you could also point to the fact that US jobless claims unexpectedly rose. The number of US workers claiming out-of-work benefits jumped by 8,000 to 480,000. Economists had been expecting a decline. Ian Shepherdson of High Frequency Economics worried in the Financial Times: “It is starting to look as though the downward trend in claims, which has been key to the story of payroll gains in the next few months, has stalled.”

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All of these problems had been apparent already. Everyone knew that Greece was in trouble. And none of this might have mattered if markets were cheap. But they’re not. They’ve priced in a nice little V-shaped recovery, and they certainly haven’t priced in a 1998-style Asian debt crisis happening in Europe, as Bank of America Merrill Lynch strategist Michael Hartnett reckons this could turn out to be.

So the temptation for anyone who’s made money now, is to sell out and take their profits. After all, having suffered through 2008, they don’t want to be wiped out again.

So how far will markets fall? My colleague Dominic Frisby, who acknowledges he’s been bearish on the market for a while, wondered on Wednesday whether we were on the verge of another pile-up.

There could easily be a bounce today, particularly if the US payrolls figure manages to beat expectations. But none of these issues are going to go away. Even if this is just a ‘correction’, you can expect a lot of this sort of volatility this year, which is why we’ll be sticking with our defensive stance.

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