by BCA Research
Asset volatilities tend to move in tandem and rarely deviate for prolonged periods. While commodity, equity and fixed income volatilities have subsided substantially since the mid-February mini riot point, foreign exchange volatility is moving in the opposite direction. This is disconcerting for global equity markets (see chart) given the decade-long close inverse correlation and represents another non-confirming indicator of the latest “risk-on” phase.
Tack on the ongoing global trade struggles and a durable market advance from current extended levels is a high-risk, low-reward proposition. China’s greenshoots are a welcome development, nevertheless, we remain skeptical that this reflationary period will prove more than transitory as it has taken a progressively larger injection of liquidity in order to move the needle.