Today, in his small corner of the DAX index hedging world, the scribe noticed for the first time in a while that market makers hesitated to take prices in persistently choppy and violent action. Understandable when the DAX ended off 7%; and on a day when mental stops proved their worth in the face of some impressive volatility.

Since forecasting at year-start here a 2% to 8% fall in European and US equities for the first half they have instead fallen 12% to 15% in 21 calendar days. Which shows that even the persistently pessimistic can, disappointingly, be too optimistic.

Still, amidst the shock and awe, there was for those with the craving (guilty) a malicious pleasure to be had in observing the plight of French banks - notably Société Général (down 15% in two trading days), Crédit Agricole and BNP Paribas. The theory, smugly held in some quarters, that the French (cross-holding) Way and énarquism would mitigate financial contagion’s impact appears to have been snuffed out. And breaching that bastion is in itself ominous – most particularly, perhaps, for the stalled French housing market.

Yet might it all not also add up in global terms to capitulation with happy days around the corner? This observer has doubts – volume does not seem to have been large enough indicating, maybe, that today only the hot-money ran with little retail, investment or pension fund participation.

Nonetheless, that does not make it a day without significance; and those looking for the positive catalyst of an early 'surprise' Fed cut before its scheduled meeting at January-end ought to ask if that would be enough to hold back the underlying force (and even the short-term sentiment) of this tide.

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  1. "Cassandra" // 1/23/2008 04:30:00 AM

    I will admit to fancying Credit Agricole at Euro18 and Total at Euro45. And Vallourec adn Nexans, too, look oversold worth a look for a swing. GLE@ Euro 70 also seemed too-far-too-fast and 10% bounce seems possible betweeen now and when further write-down are announced.

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