Three key issues remain at the heart of current markets: the strength
of the US growth cycle; the sovereign and financial risks in the Euro area; and
the risks of ongoing deceleration in Chinese growth. Goldman has
created proxies for these various risks and the sensitivities of different
assets to those risk factors. They further note that looking at those three
proxies over time confirms what general qualitative commentary has also spelled
out. From late November to early February, the market relaxed about all three
risks, as better global data and the impact of the LTROs on European financial
risks provided a strong tailwind. From February until mid-March, China
fears reappeared and the market downgraded its views of China
significantly while still relaxing about European and growth risk. Since
then, both European – and to a lesser degree – US growth risks have
re-emerged, but at the same time there are some very tentative signs
that the market is becoming a little less worried about China. They, however,
remain increasingly cautious on them all: Europe seems increasingly in the hands
of governments, not the ECB, raising volatility; unspectacular growth trajectory
in the US continues as outlooks adjust down; and even thouigh China's risk has
stabilized they have avoided active exposures 'given the muddiness of news'.
Understanding which assets are more sensitive and how these risks evolve
might help prognosticators understand the need to pay attention to
Europe - as opposed to merely Apple's earnings.
Tracking the Three Risk Perceptions Through Time...
And asset sensitivities to these risk factors...
Charts: Goldman Sachs
Tracking the Three Risk Perceptions Through Time...
And asset sensitivities to these risk factors...
Charts: Goldman Sachs
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