Uneasiness Grips Global Markets

It’s happening again. Markets around the world, from stocks to metals and bonds, have slowed to a crawl, revisiting lows in volatility that have stood for two years. Muted moves just sent a cross-asset gauge of price swings in equities, rates, currency and commodities to the lowest since 2014.

That everything should go quiet at once just before the US election is especially alarming to a cadre of market watchers who see threats stretching from Washington to Beijing. They see a rerun of past bouts of torpor that sometimes ended spectacularly, a consequence of efforts by central banks to keep the ugly side of markets hidden, Bloomberg reported.

“It’s a very perverse situation,” said Stephen Jen, chief executive officer at Eurizon SLJ Capital Ltd. in London and a former International Monetary Fund economist. “Investors have no choice. Even those who have been quite concerned need to deploy capital in a way they feel uncomfortable with. It’s not that they feel complacent. They’ve been forced into this.”

How quiet is it? Bank of America Merrill Lynch’s GFSI Market Risk Index, a measure of future price swings implied by options trading on global equities, interest rates, currencies and commodities, has fallen for five straight days, the longest such streak since May. It now sits at the lowest level since December 2014.

Not everyone sees evidence of distortion. While risks exist, the drop in market anxiety has coincided with a reduction in uncertainty when it comes to US politics and policy. Hillary Clinton’s odds of victory are close to the highest on record at 86.5%, according to forecaster FiveThirtyEight.

 73% Chances of a Hike

Likewise, investors appear to be coming to terms with the inevitability of a Federal Reserve interest-rate increase in December. Traders were pricing in on Tuesday in New York a 73% chance of a rate hike by year’s end, up 10 percentage points from a week ago, based on the assumption that the effective Fed funds rate will trade at the middle of the new Federal Open Market Committee target range.

“Until we get something that really surprises the market, we’re going to continue in this low volatility,” Hank Smith, who helps manage more than $6 billion as chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said by phone. “Neither the election nor the Fed’s rate decision have people particularly worried right now.”

Traders may also perceive a clearer outlook for global monetary policy after the European Central Bank and the Bank of Japan last week signaled no urgent need to reduce asset-purchase programs.

Diminished price swings have encouraged investors to pile into higher-yielding emerging-market assets. Exchange-traded funds that buy stocks and bonds in developing nations have attracted about $24 billion over the past 21 weeks, the best run in more than a year, according to data compiled by Bloomberg.

In a note published Tuesday, Morgan Stanley’s strategists advised their clients buy currencies including the Brazilian real, Russia’s ruble and the Indonesian rupiah against the dollar, citing “strong risk appetite” and reduced levels of volatility.

 Higher Taxes for Rich

For wealthy Americans, a big win by Hillary Clinton on Nov. 8 could get pretty expensive. Clinton is proposing higher taxes on Americans who make more than $250,000, including a 4% “fair share surcharge” on incomes over $5 million a year. She’s also trying to limit the ability of the rich to lower their tax bills through clever planning.

Changing tax laws is easier said than done. Even if the Democratic presidential candidate defeats Donald Trump, she’ll probably be negotiating any tax bills with a House of Representatives still controlled by Republicans.

Democrats would get free rein to set tax policy only if a big Clinton win helps them gain control of both the Senate, which is teetering, and the House.