Back
15 Dec 2014
Expect volatile market moves ahead – ANZ
FXStreet (Barcelona) - Richard Yetsenga of ANZ sees markets to likely have a risk-off tone going forward, as falling commodities and US bond yields may add to volatility in the markets, further viewing the current price action as worrying.
Key Quotes
“The price action in some markets currently — such as currencies and emerging market fixed income — harks back to 2013’s taper tantrums.”
“In the current episode US bond yields and commodities have been in sustained down trends for quite some time, and equity prices have now been falling for the best part of two weeks. In this sense, therefore, the price action being sent at present is more worrying than during the taper tantrums.”
“In addition, it doesn’t seem likely that positioning will act as a circuit-breaker to recent market trends. Certainly the market is long the USD, but the CFTC data suggest that the market remains net long oil, and shorts in the US bond market are the second largest this year (and one of the largest on record).”
“We would rather err on the side of caution and suggest that volatile market moves should be expected going forward, with markets likely to have a risk-off tone. The upshot of all this is to expect at very least a period of heightening volatility in financial markets to persist in the near-term, not least because of reduction in liquidity as year-end approaches; the USD to stay strong, except perhaps against the JPY and where short positioning dominates (the EUR might also receive an initial benefit here, particularly given its large current account surplus); bond yields in advanced economies (outside peripheral Europe) to remain under downward pressure; and emerging market currencies to remain weak and bond yields under upward pressure.”
Key Quotes
“The price action in some markets currently — such as currencies and emerging market fixed income — harks back to 2013’s taper tantrums.”
“In the current episode US bond yields and commodities have been in sustained down trends for quite some time, and equity prices have now been falling for the best part of two weeks. In this sense, therefore, the price action being sent at present is more worrying than during the taper tantrums.”
“In addition, it doesn’t seem likely that positioning will act as a circuit-breaker to recent market trends. Certainly the market is long the USD, but the CFTC data suggest that the market remains net long oil, and shorts in the US bond market are the second largest this year (and one of the largest on record).”
“We would rather err on the side of caution and suggest that volatile market moves should be expected going forward, with markets likely to have a risk-off tone. The upshot of all this is to expect at very least a period of heightening volatility in financial markets to persist in the near-term, not least because of reduction in liquidity as year-end approaches; the USD to stay strong, except perhaps against the JPY and where short positioning dominates (the EUR might also receive an initial benefit here, particularly given its large current account surplus); bond yields in advanced economies (outside peripheral Europe) to remain under downward pressure; and emerging market currencies to remain weak and bond yields under upward pressure.”