Jefferies “On Almost All Measures, Risk Appetite Is Insatiable”

There is an “insatiable” risk appetite” in markets, a Jefferies report notes, as the “front loading of positions in some futures markets” is causation for a price drop in certain asset markets. There are first, second and third level concerns that center around a risk appetite that “has produced a windfall risk backdrop for equities,” the report notes, pointing to such issues in a variety of global stock, currency and bond markets.

 

 

Risk Appetite – The global economic temperature might be starting to turn

When Jefferies Chief Global Equity Strategist Sean Darby looks at the investing world, he sees a complex global web of nuance.

In a May 19 Global Asset Allocation report written with Quantitative Strategist Kenneth Chan and Equity Associate Irene Zhou, the trio looks at layers of performance drivers that overlay market risk. In a report titled “The First, Second And Third Derivative,” they attempt to set the table for a world where low-interest rates have motivated investors to take risks they normally would eschew.

While bullish investors might think the world is operating at Goldilocks temperature, the Jefferies report starts to note a cooling trend that might leave a bad aftertaste.

“With producer prices peaking and commodity markets subdued investors are questioning whether the first derivative of growth is rolling over,” the trio observed. “While China has begun to tighten credit, investor positioning is just as much to blame for the ‘apparent dampening’ in demand,” they write.

But it is not just the first level where concern exists. “There are also tentative green shoots of second and third derivatives of growth.”

Risk Appetite – The many forces that create market distortions

Taken in sum total, low interest rates around the world have created a distorted environment where investors will do anything to obtain yield – and in part, this is impacting the delicate global market balance.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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