Looking through the charts, it’s evident that the month of May has been a swift unwinding of all the optimism from Jan through March.
The currency performance chart in May (vs JPY) is essentially inverted to what it was in the first three months of the year (April was flatish).
The narrative is that markets believed the LTROs were a silver bullet for the European sovereign crisis. They weren’t.
If we smooth out run-up in Q1 and May crash, the euro and Australian dollar are the worst performers for the year, down around 4.5%. That makes sense given the weaker-than-expected growth in Europe and China.
Otherwise, markets are essentially right back where they were before the LTROs. The question going forward: Is the global economy in better shape now than it was in late December?
I would argue the world is in a more dangerous spot at the moment. That should push risk trades to cycle lows.
