The Risk-Weighted Index Pain(t)s a Gloomy Picture

24 de ago. de 2018

With regards to the constructive risk profile, pay attention here. It’s important not to be too complacent as the short term recovery in the risk-weighted index occurs within a wider negative context. From a top down analysis, we've drawn a few trendlines to represent the perils that entail for risky assets each time a violation occurs, which since the GFC, tends to signals a topping phase in risk, and if history is any indication, it heralds an eventual market capitulation as the chart illustrates.

By drawing ascending trendlines in the risk rallies seen since the GFC in 2018, we can notice that everytime the market has breached the line, the capitulation, in a larger or smaller degree has ensued. As we point out, expect a potential outperformance of currencies the likes of USD, JPY, CHF going forward as the risk rally phase fizzles out.