The Market Is Flashing Signs Of 'Deep Instability'

Sebastien Galy of SocGen sees this as a sign of rising jitters and instability.

It took only some speculation of a German downgrade to send the DAX plunging sharply lower, before it partially recovered. The sensitivity of different markets to negative surprises seems to have risen sharply recently, particularly in Europe and the broad EM spectrum. It suggests that the period of consolidation is continuing. Until now, sharp corrections were met by sharp recoveries as they were in 2006 and 2007 typical of liquidity fuelled rallies. This is the second period of deep instability this year, the last one was end of February (“instability cubed”).

Yesterday, Galy's SocGen colleague Kit Juckes noted that a lot of clients were wondering whether what happened to gold in recent days could happen to stocks.

Markets are on knife's edge.