Equity volatility returns: blame uncertainty - Natixis

Analysts at Natixis point out that the equity market volatility in the recent period may be explained by the return of uncertainty about growth, inflation, monetary policies and economic policies. 

Key Quotes: 

“Since the start of 2018, volatility (actual, in options) has returned to equity markets.”

“We believe this return of risk perception and equity market volatility is legitimate and corresponds to an actual rise in uncertainty.”

“Four causes of the rise in uncertainty: 

1- Uncertainty about growth. The question here is the return of the unemployment rate to the level of the structural unemployment rate (...) This means that growth in the best case will return to the lower level of potential growth, but also that this may lead to a greater slowdown in growth, for example by triggering a decline in investment.

2- Uncertainty about inflation. The cause of the greater uncertainty about inflation is clear: is it possible for core inflation and unit labour cost growth to remain low (...)

3- Uncertainty about monetary policies. The uncertainty about monetary policies stems from the fact that it is difficult to anticipate central bank behaviour when there is a return to full employment, but no inflation (...)

4- Uncertainty about economic policies. The uncertainty about economic policies is primarily due to economic policy choices in the United States.”

“Conclusion: The increased equity market volatility is not shocking. We do not see the increased equity market volatility as shocking and it is therefore likely to last, since it corresponds to an effective rise in uncertainty concerning.”