This week’s Market Risk AlertTM rating remains at 2, based on Friday’s moderate (39%) quantitative reading (1 to 5 ranking, 5 being max risk-off). Virtually all market signals remain constructive on risk as the ECBs dovish comments curbed the Euro’s rise, caused gyrations in G-10 currencies, but left equity returns virtually unchanged and credit a bit tighter on the week. Tactical allocators should be reducing hedges and/or adding risk here. Allocators with a longer-term time horizon should reference our 2014 market overview for suggested allocations across global asset classes given the coiled springs tightening under certain assets due to zero rate policy (ZiRP).
Regional Market Risk Heat Map (below)
Global risk indicators abate. This sets up well for a clear reading ahead of the next shock.
Outlook: We remain modestly positive on risk assets in the near term and medium term bearish for reasons discussed in our 2014 Market Overview. We suggest a short in the AUDUSD as a reversal is likely.
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