Uncertainty? Volatility index 20% below its historical average

After a period of gloomy macro data, market watchers are starting to see the light.

While the moments of truth are approaching in the trade conflict and Brexit, recent statements and actions by major central banks – such as the Fed or the European Central Bank (ECB) – would seem to indicate that they are changing course in an attempt to get the recently increasingly feeble economic cycle back up and running – possibly at the cost of higher inflation and easier borrowing terms, analysts at Allianz point out.

According to Global Capital Markets director Stefan Scheurer:

“While the moments of truth are approaching in the trade conflict and Brexit, recent statements and actions by major central banks – such as the Fed or the European Central Bank (ECB) – would seem to indicate that they are changing course in an attempt to get the recently increasingly feeble economic cycle back up and running – possibly at the cost of higher inflation and easier borrowing terms. This shift in international monetary policy, prospects of a weaker US dollar, an easing of trade conflict tension and growth stimulus from China may help to continue supporting capital markets.”

“In the meantime, the share of “bulls” has increased significantly – from around 30% at the start of the year to currently 54% net. At the same time, the volatility index is some 20% below its historical average, in spite of the much greater uncertainty facing the world economy.”