Volatility has been creeping back into markets, creating headaches for investors as they try to navigate wild swings in currencies and oil, geopolitical uncertainty and diverging moves by global central banks.
But although traders have been forced to accept a new era of choppy trade, some hedge fund managers argued this is not all bad.
“Finally, some volatility is coming back to the market,” Salvatore Cordaro, chief investment officer (CIO) at Tages Capital, told CNBC, highlighting that it was “quite unusual” to have volatility in government bond yields, for instance, even as they were moving lower.
“I think it is a reflection of people trying to anticipate what logical normalization, especially on the rates side, will mean for markets – the rates markets, but also equities and the rest.”
One of the major drivers of volatility is the U.S. Federal Reserve, and markets have been hanging on every word from the central bank since a policy statement earlier this month, which prepped markets for an interest rate rise.
While the Fed dropped “patient” from its statement, referring to the normalization of monetary policy, Fed Chair Janet Yellen added that the central bank was not “impatient” either. She referenced the current weakness in inflation and the strength of the U.S. dollar.
Other pressure points include unpredictable oil price moves, in the face of air strikes against Yemen and the possibility of an Iran nuclear deal, and Greece, which is in the midst of laboured talks with its euro zone creditors in an effort to establish long term financing.
Meanwhile, the dollar has advanced against almost all major currencies. Tages Capital’s Cordaro said currency market volatility was creating massive opportunities for his firm at the moment, and it is a key play in his portfolios.
“The one thing that is very risky about currencies today is if their positioning in the market is in the obvious places,” he said, speaking at the sidelines of the Investors Choice awards in London.
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