Aside from a period of brief respite at the end of January, it’s been a bruising year for risk assets so far in 2016.
For the most part, stocks, higher-yielding currencies, high-yield credit markets and commodities have been hammered, continuing on the form seen during the second half of 2015.
As this chart from Deutsche Bank’s latest “House View” report show, with the exception of sovereign bond markets and safe haven currencies such as the Japanese yen and euro, it’s been an ugly ride for risk assets.
Helping to explain the bone-jarring weakness, this graphic from Deutsche reveals that aside from supportive central bank policy from the likes of the US Federal Reserve, Bank of Japan and European Central Bank – something many investors are now questioning – there are next to nil supportive factors helping to underpin risk assets at present.
David Folkerts-Landau, Deutsche Bank’s group chief economist, suggests that until “until US growth, European financial conditions, China and oil concerns are put aside, markets will remain volatile”, with a sustained change in risk appetite “difficult”.
Despite the recent carnage, Folkerts-Landau is not a bear, far from it in fact.
He describes the bank’s macroeconomic outlook for the year ahead as “unchanged”, calling it “uninspiring but not a disaster”.
As a result, he believes that there’s likely to be 15-20% upside for US and European equities in the year ahead, although he admits that risks to his view – presumably to the downside – remain in place.
Business Insider Emails & Alerts
Site highlights each day to your inbox.