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Event risk playbook for the week beginning August 19

What’s coming next for global markets

Bonds are painting an ever-dour message on Fed policy, an end to globilsation and slower
global growth. We look ahead to next week. 

As I review in the
‘Event risk playbook’, the market will trade in anticipation of Friday’s
Jackson Hole Symposium, and what will be and what wont be said, and who will
say it – this will be the only thing that matters. The title of the sympoeseum,
and what is in effect a massive cental banker shindig, is “challenges to
monetary policy”. Consider that one of the reasons we have seen buyers of gold,
global bonds and JPY is that the world is questioning the central bank put. But
also because many just don’t believe that monetary policy can save us if this
downturn gets momentum.

I am inclined to
agree. Therefore the emphasis of the symposium falls not only on the level of
confidence bankers can instal in the belief they have the firepower to curb any
economic fallout. But on how much of a role fiscal policy needs to play in the
period ahead.

The question of
who represents the Fed is critical ,and after NY presdient John Williams
communication mishaps a couple of weeks ago, the market will be hoping to hear
from the main man on the Fed, vice chair Richard Clarida. While he may be more
dovish than others voting members, the market will listern to him above all
others.

Aside from the
Fed, we should hear from key represwentaitves from the ECB, BoJ and other DM
and EM centrals banks. With trade tnessions, flatter curves and a belief that
policy isnt working or going to work, this event is going to be a possible
game-changer.

If we look at my
weekly implied volatility (IV) report, the IV covers FX options that expire on
Friday (NY cut), so doesn’t account for the Monday open. If the Fed stay behind
the curve, and continue to  lack any
urgency to get in front of the cruve, Mondays (26th) open could be
pretty ugly. I will update this spreadsheet on Monday to account for the event
risk. 

Implied volatility

If you have a spare hour (I know, who does
these days?), I have put down the link for my recent webinar on using
volatility as a framework to manage risk. It breaks down this spreadsheet and
how you can apply/understand risk reversals, the weekly Commitment of Traders
report and have a deeper perspective on implied and realised volatility – https://youtu.be/f_12P86jUfk

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