In a recent note, Aymeric Forest, Head of Multi-Asset Europe and Matthias Scheiber, Multi-Asset Fund Manage explain that while the fundamental picture remains consistent with a low volatility environment, some catalysts could increase risk aversion such as interest rate policy changes, geopolitical events and disappointing growth data.
Of theses risks, the two say, Europe is most at risk from the tensions in the Ukaine, but they add: “Additional risks could emerge such as the European Asset Quality Review (AQR) of the banking sector, and the US mid-term elections in the fourth quarter.”
And, the pair explain: “Although the stress presented by policy-related uncertainty in the US and Europe appears to be low at present, the recent flattening of the US government bond yield curve shows how sensitive economic growth and long-term inflation expectations could be to such a change of policy.”
Thus, while they expect the low volatility regime to continue, the market is not immune to short term catalysts driving it higher and if it is to continue, he delivery of growth and the ongoing flow of liquidity from central banks will remain a critical requirement.
