ICYMI, RoRo — or risk on/ risk off — is apparently back.
It’s not quite at peak levels but that bane of interesting narrative, that supporter of the yen, that acronym of dubious origin is getting back up there:
Deutsche Bank’s Stuart Parkinson and Rineesh Bansal kick off their tale of RoRo on a controversial subject: where did the phrase risk-on/ risk-off originate. We’ve had some outlandish claims sent our way in the past.
A colleague who shall remain nameless once claimed he had invented RoRo (and the question mark) but we feel there is a ring of truth to the suggestion that a company called Riskmetrics, originally a JP Morgan project born to gauge the level of risk being run by the firm, actually has the dubious honour. Read more
From Capital Economics on Friday:
At the time of writing (Friday afternoon in the UK), equity and commodity prices and government bond yields are all falling sharply. This appears to be in response to weaker-than-anticipated US data on retail sales and consumer confidence (discussed further below). If so, this is probably an overreaction, as the figures were hardly disastrous. The falls in the prices of riskier assets may also have been exaggerated by week-end position squaring after the Bank of Japan-inspired rally in the previous days.
Nonetheless, most of these moves are consistent with our long-held view that a disappointing global recovery will cause the equity market rally to run out of steam, the prices of industrial commodities to fall further (with Brent crude in particular heading back below $100) and 10-year US Treasury yields to dip to 1.5% or so by year-end. The pick-up in market volatility more generally is something that we had been anticipating too.
That’s Citi’s risk-warning signals beginning to spike over the past couple of weeks and especially over the last day or two. From Citi’s Steven Englander: Read more
The ‘great rotation’ from bonds into equities: a few weeks ago it was looking like it might be seriously on. Even Albert Edwards sort of kind of said equities were cheap. And Ray Dalio said it is happening, too.
But there are a bunch of reasons why it doesn’t seem to be quite such a sure thing, at least for now. Read more
Negative rates, as we’ve discussed before, are a funny thing.
On the one hand they can send an immensely powerful message. On the other hand they have the power to seriously and dangerously disrupt core economic mechanisms by magnifying the physical hoarding incentive — this helps to create a negative feedback loop that ultimately crowds out capital and leads to voluntary capital destruction. Read more