The latest ANZ FX Strategy Flash publication is just out
In brief, ANZ say that:
- Policy uncertainty brings near term risk, but sustained risk sell-off not on the cards
As with all ANZ research their reasoning is detailed and thorough, but in summary:
Some markets and assets are starting to trade with a risk off tone
- As the French election draws closer, French stocks are underperforming
- At the same time rising uncertainty in the US has drawn flows into gold funds.
In the near term we expect that volatility could spike
- We still think that any spikes will be short lived. While policy uncertainty is an important driver of markets, we think that it remains secondary to growth as a driver of sustained market volatility.
The impact of growth on volatility is also borne out in our ANZ Regime Identifier - which measures the correlation across FX, equities and bond markets. It has been steadily declining since mid-November 2016 and this suggests that we shifted from a highly correlated world -where assets are roughly split in risk-on/risk-off assets- to an uncorrelated environment where local drivers are starting to play a greater role.
heightened policy uncertainty may impact on the currency concerned on a sustained basis, while global growth remains at current levels, it will not be an environment where these events can have a sustained negative impact on the broader currency performance.