Market commentary: Volatility, still queen of the markets!

Volatility continues to dominate markets as investors witness selloffs that are making markets too cheap to be passed on, and growth concerns making rebound rallies too uncertain to be ridden without taking profits off the table.

And so, once again this week, after two days of sharp declines among equities around the world, futures seem to point to another tentative rally driven by buyers willing to pick up valuable stocks at discounted prices.

Although it is still too early to say, this Wednesday is poised to somewhat resemble last week’s rally; which, starting out as a market stabilization after three trading sessions of selloff, took markets from their worst day since the beginning of the of 2000, to their largest daily rally since the 2008 financial crisis.

Putting volatility aside, and moving on from the widespread believe that China was, is and is likely to remain the major down side catalyst within the current market environment, investors may note that equities are not the only asset class experiencing big price swings.

Bonds, for instance, have also enjoyed a wild ride over the past few trading sessions, with perceived safe heavens, such as US Treasuries, moving in sync with sentiment, while riskier assets, such as Emerging Markets debt or High Yield names, selling off, recovering and then declining again earlier this week.

The Bloomberg Global High Yield Corporate Bond Index retreated almost 2% in August before jumping 0.42% over the last week.

The JPMorgan Emerging Market Bond Index dropped about 2.56% during last month, managed to recover over half of the losses by rising 1.57% last week, before declining another 0.28% since Monday.

In contrast, the 10 Year Treasuries Benchmark’s yield fell below 2% last week, the lowest since April this year, as investors sought out safety in the face of a market rout. Since then, the 10 Year Treasuries have given away some gains with their yield returning over 2%.

Currencies are another asset class that has seen meaningful movements over the past couple of weeks. The European currency soared as much as 5.85% against the US Dollar over the span of a week, before pairing gains by declining about 4.27% against the Green Back last week and reversing once again this week, jumping 1.27% higher over the last two days.

The Yen, widely perceived as a safe port in times of high volatility became the best performer among major currencies, after investors bought the Asian currency to hedge the selloff in equities. However, the release of Japan’s July Industrial Production data, which reported an unexpected 0.6% output fall, spooked traders, prompting them to selloff Japanese assets and causing the Yen to drop as much as 0.82% against the US Dollar.

In these uncertain markets, investors are increasing facing a strategy dilemma: ride the volatility by buying dips and trying to capitalize on profits in the subsequent short-lived rallies; take the long term view by building a convict position in assets believed to offer value beyond daily trading; or just take a pause and remain into cash until the pivotal US Jobs Report, due this Friday, and the next FED meeting, taking place on September 17th, run their course.

Disclaimer:

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.