Markets are enjoying a blessed relief now that strong storms have passed

The financial markets are, right now, intensely boring. This is bad news if, for example, you are a journalist recently commissioned to write a weekly column on the subject. Just to argue.

For most people, though, it’s a blessed relief. In March 2020, when the pandemic really hit and markets collapsed, people outside the narrow financial community focused much more on keeping themselves and their families safe and buying canned food. than to worry about equity valuations.

But this volatility has an impact on the real world, as the Bank of England recently reminded us. a blog post. “Financial markets reflect changes in the economy. But sometimes they also amplify them, “the central bank said. In other words, markets can make bad situations worse and increase financing costs for anyone trying to increase debt or equity.

To illustrate the point, the blog takes us back to the events of last spring when markets were forced to swallow a huge wave of economic rupture due to a global shutdown. The price of risky assets is not surprising, collapsed.

Various structural and technical problems related to trading and fund management caused this collapse to be quickly reinforced.

Derivatives market participants often had to issue much larger pieces of collateral to counterparties, demands that reached a crescendo in mid-March 2020. This led to more sales. It could be an exercise worth reflecting more on how warranty claims are calculated, with the aim of reducing the impact of the vicious cycles that result from them.

In a way, it is reassuring that there is now nothing close to the typical levels of volatility.

In addition, many funds were forced to liquidate. Funds, especially those focused on corporate bonds, received an increase in repayment requests. Meeting these requests quickly, as promised, was difficult for funds with hard-to-sell underlying assets. At its peak, net outflows reached 5% of assets managed for corporate bond funds in March, the largest wave of applications since the global financial crisis. Again, for these funds, the only answer was: sell bonds quickly.

Hedged hedge fund bets, highly lucrative in good times but quickly very damaging in bad ones, also hurt, as did intense tension between banks that facilitated trading between various asset classes.

All of this guarantees “additional research,” the blog says, if we want to avoid similar sadness situations with possible real-world effects in the future. Last time, only the strong intervention of central banks stopped rot.

March 2020 was an extreme example of stress, for sure. However, with this period recorded in such a recent memory, it is reassuring, in a way, that there is nothing even remotely close to the typical levels of volatility. This keeps financing costs surprisingly low and provides the global economy with the space needed to recover from the pandemic shock.

How quiet is it? Absolute Strategy Research notes that the S&P 500 benchmark in U.S. equities has shrunk to the ever-shrinking trading ranges in recent weeks. It moved more than 1% in any direction in a single day only twice throughout the month of June. Even then, it fell and jumped a similar degree on consecutive days, so it was roughly a wash. New highs are approaching everyday life, but are coming in small increments.

In coins, the tone is equally dormant. “It is not at all charitable to suggest [major currency] the ranks of the year have been poor, ”wrote Deutsche Bank macro-strategist Alan Ruskin.

“It is still likely that the euro may register its narrower annual range against the dollar since the fall of Bretton Woods,” he said. The common European currency is probably on track to achieve “a similarly ignominious record” against the yen. Even typically more lively transactions, such as the Australian dollar against the yen, are also in a deep sleep.

And all this before the traditional summer calm begins.

Even cryptocurrencies, usually a reliable source of false unpredictability, are asleep. After a halving of the price of bitcoin earlier this year, prices have been in a tight range of about $ 33,000 for savings. Some true believers say the second Crypto Winter has been installed, similarly to the long slow period after the last boom and softer coating in 2017.

That, of course, could change with one unique tweet from Elon Musk. But back in the world of more established asset classes, with the exception of a severe inflation shock or variation in the Delta variant, optimistic stability appears to be the outlook for the coming months.

In part, says Karen Ward, JPMorgan Asset Management’s chief market strategist for Europe, this is due to faith among investors in central banks ’willingness to cushion the shocks. “Plus, we still have a retention pattern,” he said. The big question about how long inflation stays and how pronounced it is, will take months to answer. “The data will not add any information about this story,” he said soon. “It could be the end of the year before we know it.”

Enjoy the silence. It’s “a little boring,” as one commentator told Bank of America analysts. “But it doesn’t sell a boring market.”

katie.martin@ft.com