There's At Least One Thing You Can't Say About This Morning's Bond Routing

Decoupling might be my least favorite word to describe financial markets. Almost every time I've ever heard any thesis about decoupling, it has turned out to be a sham in retrospect. Decoupling is a comfortable intellectual crutch, but rarely an apt description of today's financial world. Money flows too quickly, too easily across borders. Severe distress in large swathes of the world economy quickly lead to at least some distress in practically all parts of the global economy.

That's the main reason I've been focused so intently on the emerging market meltdown over the past month. I mentioned the large moves lower in emerging market currencies a couple weeks ago, and those routs have only gotten worse since then. Meanwhile, overnight, some of the equity market leaders of the emerging market rally over the past few years were slammed. Here are the 4 year daily charts of the Southeast Asian equity markets that got hit last night by 3-5%:

All three markets are still above their 200 day moving averages (black), though all are now trading below their 50 day moving averages (pink). The long-term charts are very similar, showing the strength of the equity market rally in Southeast Asia (one of the better long-term economic and demographic stories for the next decade). However, the short-term weakness is one more sign of the cracks building in global financial markets.

The warnings signs have been building in the last few weeks, kicked off by Japan's 7% down move on May 23rd. I discussed the importance of Abenomics to the desire for risk appetite in all assets in my Macro Wrap that day, which turned out to be my most read post of the year. Since then, we have continued to see a strong correlation between movements in the Yen and risk appetite in general. We are greeted this morning by a Yen stronger by 2% against the dollar, and lo and behold, SPX futures are down 1%, European equity markets are down 2%, and commodities are down 1-2%.

That is not a picture of a global investor base moving its assets based on the attractiveness of individual investments. It is the definition of a COUPLED world, not a decoupled one. So manage your risks accordingly. And please, please, please, don't mention decoupling to me.