Traders in the City of London, one of the financial districts of the UK capital, see a market environment where trust has all but evaporated and the best course of action is often, in the words of many spoken to by CNBC.com, to do absolutely nothing at all.
After three days of relatively slow trade more typical of August, markets plunged on Thursday and again Friday, with European shares suffering their biggest drop in nearly three years, as market volatility across the globe continued to threaten widespread panic.
A trader who identified himself only as Graham said between sips of beer in a Canary Wharf pub that the prevailing attitude in his workplace is this:
“The best bet right now is to do nothing. Every time you put risk on, you lose money. Every time you take risk off you lose money. You’re better off going away on a nice long holiday and hoping the fuss has died down by the time you come back. You’re also serving your clients better by doing nothing—although they won’t see it like that, and neither will the bank, and it’s not exactly what you get out of bed and go to work for.”
Those sentiments were echoed by other traders who shared their feelings with CNBC.com, including one who suggested he might not re-enter the market this year at all.
“I am biding my time," he said. "I won’t re-enter the market before January or February—maybe March. I don’t have the heart for it, with markets rising and falling 500 basis points at a time. I am superstitious, and after a loss, I need a gain to be double the size of that loss, to maintain mental equilibrium.
“I don’t think there’s any more bad news coming—like the S&P downgrade for example—but I think the bad news we have already had needs time to crystalize. I think things will start to settle down in September or October ... At the moment, I’m sitting with my hands under my thighs [to prevent himself from making trades].
“July and August are always quiet months, with European countries like Italy on holiday for a whole month," he said. "I think markets would be going down anyway, but the lack of liquidity available is exaggerating the downward impact of bad news.”
Other traders told CNBC.com of their fears over what the future would bring, including the threat of a US recession, slowing demand from China or another sovereign debt crisis inEurope.
“The second half of the year is going to be awful. I’m actually very positive in general, and never really thought about confidence, but I don’t want to go out and buy anything, because I’m worried about my job,” Siamek, a trader at a large investment bank, explained.
“The way you act is based on how clear the future is to you," he continued. "At the moment, there are too many uncertainties that you don’t really have the confidence to do anything about it.
“The fear factor is definitely there. There’s the S&P downgrade and then there’s China to worry about and what happens if the Chinese economy slows down because that hurts global demand and a slowdown in global demand hurts Germany so that’s something to worry about as well,” he added.
"It’s a nightmare out there at the moment"
What also concerned Siamek was the lack of political leadership on issues that were clearly creating much of the volatility. He argued that markets knew Germany could never let the euro fail as a currency, as its own economy’s future was directly tied to the fate of the euro.
“Germany needs the single currency in order to export, so it will do anything to save the euro. Simple as that. Germany will do whatever it takes to save the euro,” he said.
He added the markets needed to see decisive action from northern European nations, but suggested a euro bond was not the answer, preferring a two-tiered Europe over greater fiscal and political union , which he believes would take far longer to achieve.
The level of fear in the markets is such that traders are even asking their fellow bond traders for half a basis point on top of the yield for 20-year German bonds before they're willling to buy, according to one bond trader.
“It’s a nightmare out there at the moment. You have guys that are haggling with you over a 20-year German bond, and they’ll mark the price up half a point from the screen. So you’re looking at the screen and you know the price, but they’re still asking for an extra half a point. That’s how little confidence there is,” he said.
The bond trader, who wished to remain anonymous, added that “across the board” traders were taking risk off.
“No one is putting risk on, no one is doing anything unless they’re covering a short," he said."People won’t bid on stuff."
“There’s a ton of volatility in the market, and there’s hardly any liquidity, and there’s a bunch of (junior traders) who are too scared to buy or sell and don’t act because the senior brokers are on holiday and they don’t want to get into trouble for making the wrong decision.
“When the market is down like today [Thursday] it could be a buying opportunity, but the junior brokers don’t want to get in the market with so little liquidity in case it goes wrong and they lose money,” he added.
What many complained about was also the lack of real information available. Traders told CNBC.com that speculation was being reported by the news media as hard fact, which was only helping to push volatility further. They added that a lack of fundamentals is also hurting market sentiment.
The recent—and as it turned out unfounded—report that French bank Societe Generale was so exposed to Greek sovereign debt that it would need to be rescued by the French government was one particular example that traders repeatedly cited.
“The markets are reliant on the information that they get," one trader said.
“If that information comes from the Financial Times, then it’s already priced in but look at the rumor about Societe Generale that came from the Daily Mail and turned out to be nonsense. That caused chaos, and at first the Daily Mail said they had a source and then had to come out and say, ‘actually we don’t have a source.’”
He added that such was the fear of the next news story and traders' general mistrust of the information they're receiving, that they're turning to Twitter to help them make decisions.
“Traders are using Twitter for information because traders will communicate with each other over Twitter and you can reach a whole group of people with one tweet -- it saves on texts. Work can’t stop you because it’s a private communication. If you look for one of the highest trending topics last week on Twitter one of them was SocGen because all the traders were using Twitter to talk to each other and get their information.,” he said.
However two equities traders who spoke to CNBC.com had a more sanguine view of the markets. “It’s probably just a crazy August. There are a lot of junior traders who can’t make decisions,” one said.
Meanwhile, the other summed up his advice like this: “Hold commodities, gold as a safe haven and invest in emerging markets, but if Chinese demand collapses, then it’s the end for commodities.”