Risk Assets Don’t Have A Central Bank Superhero This Time

By Michael Read, Bloomberg Markets Live commentator and reporter

Why hasn’t risk bounced?

Why hasn’t there been a large troupe of dip buyers at the ready after Friday’s rout? 

There are three main factors behind the underwhelming price action so far this week:

1. The emergence of previous variants has come as central bankers were roughly midway through an easing program: there was a backdrop of asset purchases and dovish forward guidance to placate an angsty market. This time not so much, and while policy makers may tweak their speeches to stress fresh downside risks from omicron, there will be no new easing response. We clearly have more robust vaccine pathways and far more sophisticated health care protocols than at the start of the pandemic, but markets remain conditioned to respond to central banks.

2. We’re closing in on year-end and the risk-reward metrics are likely skewed toward taking some money off the table after a healthy year of equity returns. With so much uncertainty around the severity of the latest variant, this isn’t the time for portfolio heroes.

3. We just don’t know enough yet, and we won’t for several weeks. Reports of ‘mild‘ omicron cases may be broad, or regionally anecdotal; vaccines may remain effective or they may be less so — unfortunately you need a solid data set to make accurate assertions. Risk assets will remain at the mercy of speculative comments.

The above doesn’t necessarily suggest a big fat “SELL”, but does add a large dose of caution into the mix.

And that uncertainty will not have a central bank superhero to underpin sentiment.