Conversations about volatility sometimes feel like conversations about gold. There are people who seem to have a bottomless pit full of opaque, conspiratorial and technical knowledge out of which they cook up a witches’ brew of the most terrifying forecasts which infect the imagination and wake you up at night. They aren’t often right, so it is easy to resent the loss of sleep, and they are making a lot of noise right now.
Calls for higher volatility were commonplace in the annual outlook documents at the beginning of the year. Back then, politics and the end to a decade of flooded liquidity were the triggers. With perfect foresight on these issues, we doubt many of these pundits would have changed their volatility forecasts. But they all seem to have been wrong so far and at the half way mark, short volatility strategies are performing well.
Growth numbers are better than we might have expected; global and solid, without being worryingly strong in our view. And the weaker dollar – historically a benign influence on global liquidity – seems to have surprised many. And any good news out of European politics (Macron and the French election) has been beneficial. This has made it possible to listen to the Central Bankers’ warnings about the end of the party in a state of preternatural calm.