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The Intelligence Report

Global views and trends

Guy WILLIAMS
 

The spark for the fire: why had investors been ‘shorting’ volatility? – taking a timely look at the mechanics of the recent volatility surge and drawing some balanced conclusions about the possible implications for asset prices. Five topics for Chairman Powell – considering questions that senate members might consider asking the chairman.

Last week was characterized by a recovery in global risk assets as volatility eased from their spike levels witnessed in the days following the release of higher-than-expected payroll earnings. This calmer environment last week is all the more notable in that it coincided with further signs of inflationary pressure in the form of a high CPI print. In the first of this week’s articles, Matt Joyce takes a timely look at the mechanics of the recent volatility surge, and analyses the extent to which it can be explained by implicit and explicit volatility-selling strategies, drawing some balanced conclusions about the possible implications for asset prices.

Federal Reserve Chairman Jerome Powell will testify next week before the Senate Banking Committee when he presents the Federal Reserve’s Semi-Annual Monetary Policy Review. In the second of this week’s articles, Steve Friedman considers questions that senate members might consider asking the chairman. These questions fall into five broad categories, ranging from Powell’s attitude to improving transparency and communication, the efficacy of asset purchase programmes, whether and how the current monetary policy framework needs to be adapted, the appropriate interaction between fiscal and monetary policy to his approach to balance-sheet runoff in an uncertain world. Clarity on any of these issues would give investors a better insight into likely monetary policy formation in a post-Yellen world, and, linking to the first article, whether monetary policy uncertainty is likely to be driver of increased volatility in the future.

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