"Risk ON or Risk OFF? Ask the Fed...."
Global markets are made of 5 major asset classes, each one having a distinct behavior and ecosystem:
- Commodities
- Interest Rates
- Credit - Fixed Income
- Foreign Exchange
- Equities
Considering the monetary expansion since the GFC, the market players' composition has shrunk considerably and risk premiums have collapsed up until the inflation shock post-Covid triggered a long and steep interest rate hiking cycle from most central banks.
Credit, Interest Rates and Equity markets are all highly correlated with the Central Banks as a Main buyer and playing a major role in controlling their valuations.
The volatility in FX markets has also collapsed yet economic, political and geopolitical seismic shifts trigger the repricing of individual countries' currency from time to time.
Commodity markets tend to follow the underlying production & investment cycles while the global demand has been kept on tracks and hence are not so correlated to the Central Banks' activities. This is probably the single asset class that has retained a DNA close to the one it held pre-GFC.
In this section we explore the consequences of the current market structure and what are the possible paths of development for each asset class now that interest rates have become more relevant than ever now:
- Trading
- Sales / Structuring / Broking
- Technology
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