Morgan StanleyIt is said that the combination of low liquidity and high complacency means that cross-asset volatility will not stay at historical lows for too long.
Andrew Sheets, the bank's cross-asset strategist, said in an interview last Friday (April 12) that "there are still two things that are correct or sustainable against current volatility."
“First, market liquidity is still not high. Second, I am not sure whether the market has come to a logical conclusion of the 'asset price trend' in the emerging optimism,” he said.
In the context of the global central bank’s dovish turn, China’s increased economic stimulus and ease of trade tensions,currencyPrices, bonds and other asset classes fluctuated sharply. The Chicago Board Options Exchange (Cboe) Volatility Index has fallen more than 50% this year, measuring the volatility of US Treasury bonds –Bank of AmericaThe volatility index is returning to record lows.
The report shows that the growth of the financial market in the past 10 years andbankThe disconnect between the ability to take risks may exacerbate any selling behavior.
Hitz said that complacency market participants equate the Fed with the market volatility, which is also a problem, and the price fluctuations may soon be surprising.
“If the Fed keeps the doves and the data is weak, the volatility will rise,” he said. “If the data improves, the central banks are actually saying that in the face of continuous improvement, we will not tighten monetary policy. Is this? Will it generate more risky behavior? It will also be unstable."
Many strategists also expressed concern about the impact of low liquidity.
GoldmanThe group's John Marshall and Rocky Fishman warned in December about the risk of falling volume and deep market decline.
JPMorganMarko Kolanovic expressed concern about the negative feedback cycle between volatility and liquidity this month.
According to Hits, investors may have developed the habit of selling volatility, which may keep some indicators that measure volatility at a low level.
The strategist believes that 2007 is a year worthy of vigilance for those who believe that low price volatility is complacent. The yield curve for the year is also very flat and the implied volatility is low.
“The market’s explanation for this dynamic is that the Fed has stopped raising interest rates and will now maintain policy stability and will remain for a while, and the economy is a bit weak.” He said, “This is not the case.”
(Article source: Youcai)