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With the topic of the Great Moderation floating to the surface more recently, investors may see greater justification for the low level of implied volatilities beyond its underperformance over shorter horizons. While volatility needn’t be a buy in the immediate future, the growing share of growth contribution and market relevance of emerging market economies could mean a greater degree of difficulty in predicting aggregate data and somewhat higher market risks.

The Great Moderation idea centered on the decline in volatility of growth and inflation in the years preceding the 2008 financial crisis, and implicit stability in the nominal growth trend. The current status quo seems unlikely to produce a regime change to higher output, in the same way the 08 crisis produced sizable output gaps in many developed economies. This much could support the case for continued low variability of inflation/growth. Perhaps more interesting for markets is the degree with which market...

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– SEK weakness remains likely despite the declines already seen against USD, NOK and EUR; however, resistance levels which are currently being tested should be watched for a break before the next leg in SEK weakness should be expected:

  • USDSEK testing 6.57 and a break opens the way towards 6.70 and then 7.10
  • NOKSEK testing 1.1050 and a break opens the way towards 1.14-1.1450
  • ...

USDJPY is likely to remain sidelined this week while there’re no specific economic statistics in Japan. BoJ Governor Kuroda is scheduled to deliver speeches on April 16 and 17, but given his optimistic view on the economy, it is hard to see him suddenly shifting in his conservative stance. He even noted last week that Japan’s output gap may be close to zero with unemployment, which declined to 3.6% in...


So far the equity market sell-off has been concentrated in the US with risk-correlated assets elsewhere doing relatively well. Now there are signals that USA equity risk off is becoming broader risk off, although the signals are still tentative. In particular the US equity sell-off, which was blown off by EM markets initially by most equity markets is beginning to spread both to EM and G10 (Figure1). AUD and...

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Format: 17/04/2014
Format: 17/04/2014

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