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Q1 was marked by an abrupt pick up in volatility in the equity space, as the euphoric market positioning from late 2017 and early 2018 didn’t stand the test of a weakening global macro momentum, according to analysts at Nordea Markets.

Key Quotes

“While the risk of a trade war was likely the trigger of the weakening risk sentiment, we judge that the combo of markedly higher US interest rates and a worsening momentum in global key figures were the fundamental reasons behind the loss of equity momentum.”

Lately, volatility has moved from Developed Markets and into Emerging Markets,  where currencies like the TRY and ARS have started to look like cryptocurrencies. And while cases like the Turkish and Argentinian ones could be explained idiosyncratically, we consider the recent EM hiccups as a signal that tensions have generally risen in the global financial markets.  And our base case is that volatility will stay and likely also continue to increase as the current business cycle will continue to mature. This is also the signal that the US yield curve is sending.  Risky assets could be in for a bumpy ride as a consequence  and on aggregate we have a slight negative bias on risk appetite over the coming quarters.”