Last week saw a big bounce across almost all asset classes, with oil up close to 10%. As such oil related market outperformed (see huge moves in Norwegian and Indonesian equites or the rally in the Russian Ruble). In the current environment with enormous financial liquidity (from QE and low rates) but limited trading liquidity (given greater bank regulation), we think the distribution of market returns has changed. Positioning is crowded, volatility is generally lower, but tail risks are more significant. This perhaps helps to explain recent moves.
At a fundamental level, the global economy is characterised by consumer strength (from easy policy and lower commodities) and industrial weakness.On Tuesday, the IMF again lowered its global growth forecast for 2015 and 2016; there is a sense of déjà vu.
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