Low Volatility Debate Complacency vs Fundamentals

With market volatility at pre-crisis lows, concerns are rising that complacency may herald a selloff, but some analysts believe fundamentals are driving the decline in risk.

“Quite a lot has recently happened in terms of geopolitical risks, oil prices etc. and yet volatility has not budged,” Klaus Baader, chief economist for Asia Pacific at Societe Generale, told CNBC. “It’s not just equity volatility. It’s bond volatility; it’s FX volatility. It’s all massively low.”

But Baader attributes the low volatility to fundamentals, rather than signs of market over exuberance.

“The amount of liquidity that central banks have been providing is taking risk duration out of the market,” Baader said, adding that economic data have also shown low volatility, with volatility in U.S. non-farm payrolls data, for example, at the lowest since 1960.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza