US - Worrying about volatility being too low

Worrying about volatility being too low

·         US officials have expressed concern that volatility in the markets is too low. Low volatility is a concern because it encourages investors to take on too much risk and raises the likelihood of a crash in the future

·         It’s clear that this process is indeed unfolding:  investors do expect volatility to remain low, and they are taking on more risk.

·         However, I expect volatility to start to rise again at least by the end of the year.

·         In an environment of rising volatility, USD, GBP and perhaps NZD may do well. AUD is likely to underperform, and EUR may be hit. Carry trades are also vulnerable.