It’s been an interesting couple of months in world markets.
In a sense, we’ve seen a level of volatility and confusion that we haven’t seen in a while. This is especially apparent in any emerging markets (and of course Japan).
And yet US equities have held up very well. And the rise in US interest rates is arguably a very bullish sign.
In a note this morning, SocGen’s Kit Juckes says the next leg of volatility is on its way.
He suggests that in addition to rate volatility, that you should keep an eye on credit spreads, and that buying opportunities are likely to present themselves at some point in the future.
The next leg of a summer of market volatility is likely to start in the days ahead. EM currencies are in the firing line first – BRL, INR and RUB all stand out. The next leg of the rise in US bond yields will probably take 10yr Note yields towards 2.5% this summer, and 2y/2y rates towards 2%. I’d pencil in CDX in the US at 100 from 82 currently and the iTraxx crossover at 500 in the fist instance, though the sell-off is a chance to buy credit after the summer. As for key asset allocation recommendations, LoadsaCash pretty much sums it up.
In the meantime, all eyes remain on the Fed.
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