Risk On Uncertain Ground Heading Into Weekend, But Volatility Restrained

Talking Points:

• A drop from US equities through the end of week highlighted a broad drop in 'risk' sensitive assets

• Though there were a wide array of assets that felt the pinch, volatility was surprisingly restrained

• Complacency and resistance to turning a 6-year trend are very strong, can even high event risk trigger it?

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We have kept tabs on various measures that have signaled an underlying - but slow - shift away from 'risk'. There have been few bouts of genuine fear to spark a run to the exits over the past three years. However, through the end of this past week, a sense of friction was agitating the carefully crafted sense of complacency. While still far from panicked selling, the move from riskier assets spread to a broader range of markets and measures that are sensitive to a change in sentiment. Friday's drop for the S&P 500, emerging markets, carry trade and other disparate assets intensified the mere rumblings earlier in the week. Will this unease carry through to next week? Will key event risk such as the FOMC rate decision and 2Q GDP figures ignite an overdue financial deleveraging? Why have volatility measures been slow to conform to this move? We consider these questions in this weekend Strategy Video.

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