Are we heading for a sticky summer? That is a question investors would do well to ask. After all, earlier this year, it was striking how sanguine the markets appeared to be in relation to the potential threats stalking the world.
But now investor sentiment is – belatedly – starting to catch up with reality: the Vix has jumped in recent days, equity prices have tumbled and money has flocked into supposedly safe haven assets (such as Treasuries). The “risk on” climate has been replaced by a new “risk off” mood, on both sides of the Atlantic.
Why? The immediate triggers are obvious: namely, the recent spate of bad economic news, coupled with profound uncertainty about the future of the eurozone. Never mind the terrible political news from Athens this week; what is really worrying investors is that European leaders continue to champion unsustainable policy fudges in relation to Greece, even as countries such as Ireland contemplate creditor haircuts.