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GFSI makes new YTD lows as BoE & NFP boost risk assets
The GFSI declined to a new YTD low of 0.18 as of 5-Aug, a level not seen since Nov-15. With the BoE surprising to the upside in terms of cutting rates, re-starting QE and guiding towards more accommodative policy down the line, as well as better than expected US non-farm payrolls, risk assets globally got a boost.
« Credit experienced the biggest decline in stress across assets: Chart 3 shows that credit (followed by equities) experienced the biggest weekly stress decline. Indeed, Chart 5 and Chart 6 show that sovereign risk as measured by IG & sub-IG foreign sovereign bond spreads experienced the most significant weekly declines in stress versus their history in the GFSI.
- Europe continues to be most stressed region: Chart 4 shows that Europe is the most stressed region in the GFSI, despite the stress declines last week. US- related stresses which were already relatively lower vs the other regions, were more resilient. Indeed the only significant move higher in regional stress was in USD Libor-OlS spreads (Chart 5), which our Rates strategists view as driven by
the anticipation of US money market mutual fund reform in October.
Chart 1: Latest* stress across GFSI sub-components
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Source: BofA Merrill Lynch Global Research. *Latest as of 05-Aug-16
Chart 2: Change** in stress across GFSI sub-components. The biggest moves were declines in stress; led by credit. Notably stress in GBP vol declined post BoE _
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