A gauge of global policy uncertainty is “flashing red” according to The FT, amid anxiety on Brexit, the US government shutdown and the Sino-American trade war.
According to Deutsche Bank’s chief economist Torsten Slok, this more uncertain environment likely means “more dovishness from global central banks” lies ahead.
He may be right since the level of equity market uncertainty (VIX) implied by this record level of economic policy uncertainty is unprecedentedly high…
Economists at Deutsche argue in a separate note that “the depth and persistence of the tightening of financial conditions cannot be ignored, particularly when coupled with heightened uncertainty about trade policy and slowing growth momentum abroad.”
Critically these comments come at a time when financial markets are once again pricing in some tightening in Fed behavior in 2019…
But longer-term the die is cast for increased equity market volatility…
As Deutsche notes “Fed officials have also emphasised a greater sense of patience and flexibility in raising rates in response to these cross currents,” but we suspect it’s too late.
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