Intense Volatility to Persist across Financial Markets, ESMA Study Indicates
- Foreign exchange and commodity markets have been at the forefront of elevated volatility with the outlook confirming a continuing period of higher than average activity across different asset classes.
The European Securities and Markets Authority (ESMA) has published its first report for 2015 outlining the latest developments across financial markets. The study encompasses data collected from July till December of 2015 and highlights the trends, risks and vulnerabilities on the European Union’s securities markets.
An oil supply glut and slowing major emerging markets' growth led to high Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term in commodities, while the prospects for a European Central Bank led the quantitative easing program in tandem with increasingly hawkish expectations regarding the monetary policy course of the U.S. Federal Reserve, which led to very high volatility across the currency markets.
As market conditions in Europe remain tense, the report outlines high asset valuations, stable asset prices over time, albeit with increasing short-term price volatility across key markets.
The main factors bringing uncertainty to the market are related to the low interest rate environment, public debt policies of EU Member States, strong gyrations in exchange rates and commodity markets, and the existing and prospective political and geopolitical risks in the vicinity of the EU.
As can be seen below, the overall level of systemic risk has been gradually declining primarily due to the contributions of the ECB to market stability stemming from the introduction of quantitative easing.
Systemic Stress, Sources: ECB, ESMA
The ESMA highlighted increased levels of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term and market risk, whilst contagion and credit risks remained at elevated levels.
Speaking about future vulnerabilities, the ESMA outlined that fund investments in loans have been a growing trend for the past couple of years as Assets under Management multiplied five times within two years creating a big exposure to the loan market.
The hedge fund industry represented another point of risk focus for the European regulatory body.
As part of its ongoing market surveillance, ESMA will update its report semi-annually, complemented by its quarterly Risk Dashboard.
Below is a copy of the full report by the ESMA for the second half of 2014.
The European Securities and Markets Authority (ESMA) has published its first report for 2015 outlining the latest developments across financial markets. The study encompasses data collected from July till December of 2015 and highlights the trends, risks and vulnerabilities on the European Union’s securities markets.
An oil supply glut and slowing major emerging markets' growth led to high Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders Read this Term in commodities, while the prospects for a European Central Bank led the quantitative easing program in tandem with increasingly hawkish expectations regarding the monetary policy course of the U.S. Federal Reserve, which led to very high volatility across the currency markets.
As market conditions in Europe remain tense, the report outlines high asset valuations, stable asset prices over time, albeit with increasing short-term price volatility across key markets.
The main factors bringing uncertainty to the market are related to the low interest rate environment, public debt policies of EU Member States, strong gyrations in exchange rates and commodity markets, and the existing and prospective political and geopolitical risks in the vicinity of the EU.
As can be seen below, the overall level of systemic risk has been gradually declining primarily due to the contributions of the ECB to market stability stemming from the introduction of quantitative easing.
Systemic Stress, Sources: ECB, ESMA
The ESMA highlighted increased levels of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term and market risk, whilst contagion and credit risks remained at elevated levels.
Speaking about future vulnerabilities, the ESMA outlined that fund investments in loans have been a growing trend for the past couple of years as Assets under Management multiplied five times within two years creating a big exposure to the loan market.
The hedge fund industry represented another point of risk focus for the European regulatory body.
As part of its ongoing market surveillance, ESMA will update its report semi-annually, complemented by its quarterly Risk Dashboard.
Below is a copy of the full report by the ESMA for the second half of 2014.