📝 Position Adjustments Behind Recent Market Moves: Nordea

Implied volatility in both currency and interest rate markets has increased somewhat during March, but not nearly to the extent that the current geopolitical situation might justify. Much of the market movement so far appears to reflect position adjustments rather than a broad shift towards risk-off sentiment.

Since early March, the most pronounced equity declines have been observed in markets that had previously seen the strongest gains, including the Japanese Nikkei index and several Emerging Market indices. By contrast, global benchmarks such as the S&P 500 and MSCI World have seen only relatively modest declines so far.

The US dollar has strengthened somewhat over the past three weeks, although some of those gains have been reversed in recent days. At the same time, rate expectations have moved higher across several western economies in recent weeks, with further upside risk particularly at the long end of the yield curve. Risk premia still appear relatively low in a historical context –especially if governments respond to the energy shock with increased fiscal spending.