Hard to see light in the middle of a storm
Investors unshakable optimism gave out this week. Between, US President Obama ordering air strike in Iraq, the Fed seemingly moving forward their “normalization” strategy, Italy slipping back into a technical recession and President Putin placing retaliation sanctions on the west, traders rapidly cut risky assets. There were clearly a few moments this week where it felt as if the healthy risk sell-off would become an all-out collapse. US Treasury yields fell, VIX the markets “fear” gauge spiked, and the USD (index) strengthened, all classic safe-haven seeking behavior. Yet while global equity markets erased Julys gains and investors rushed out of high yielding corporate bonds, there is adequate evidence that investors risk appetite will return. First, many of the event driving global pessimism are temporary and have a low probability of effecting financial markets. Hence, importance should fade.
Read the full report: FX Research