Tuesday, 4 July 2017

Equities. Bridge over troubled waters

Is the current top five UK hit for the star studded Artist for Grenfell.

Goldman Sachs says that the stock markets low volume suggest that , it's a mere makeshift bridge over troubled waters.

Bloomberg has the story. Read below:

War or Recession Might Be Needed to Break Low-Vol, Goldman Says

Markets have been stuck in ‘low volatility regime’ for a year

Recent pickup unlikely to be sustainable without large shock

It’ll take more than central bank tightening to shake volatility from its yearlong slumber, according to Goldman Sachs Group Inc. A large shock such as recession or war is usually required.

That’s generally been the case for the 14 similar low volatility “regimes” since 1928, at least in equity markets, Goldman Sachs strategists Christian Mueller-Glissmann and Alessio Rizzi said. These periods on average lasted nearly two years, featured short-lived spikes and realized S&P 500 volatility was usually at or below 10.

Swings picked up across assets in the past week and investors are positioning for a shift higher, in part because of fears of central bank tightening, the strategists wrote in a July 3 report. But a sustained breakout is unlikely without an escalation in uncertainty or recession risk, they said.

“Volatility spikes have been hard to predict as they often occur after unpredictable major geopolitical events, such as wars and terror attacks, or adverse economic or financial shocks and so-called ‘unknown unknowns’ (e.g. Black Monday in 1987),” London-based Mueller-Glissmann and Rizzi said. “Recessions and a slowing business cycle have historically resulted in a high vol regime across assets.”

Goldman Sachs puts the chances of a recession in the next two years at 25 percent.

Low volatility isn’t unusual and tends to stem from a favorable macroeconomic backdrop with strong growth but anchored inflation and rates, similar to a “Goldilocks” scenario, Mueller-Glissmann and Rizzi said. Markets have reflected this since January, with equities reaching record highs, strong global growth and declining bond yields, they said

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