The dogs that didn’t bark
Markets were down, but the usual measures of systemic risk failed to flutter
The Eurostoxx volatility index was up just 1 point, barely noticeable after this year’s big declines. Bond yields were barely changed. Gold failed to move. Emerging market currencies were up marginally.
Some of the riskier emerging markets, e.g. Turkey, Malaysia and Indonesia, were up, while tech-heavy markets like Korea were badly beaten up (Pakistan was down 3.5%, the world’s worst performer, due to an internal political crisis).
Italian debt improved vs. its German counterpart after the populist Five Star Movement lost heavily in local elections. Last week Italy was the poster child for systemic risk; the yield spread between 10-year Italian and German bonds crossed the 2% mark, and investors worried that new elections would bring anti-European populists into power. Italian political risk just imploded.