JPMorgan plans call with clients on market volatility

Bloomberg

JPMorgan Chase & Co. plans to host a conference call on Tuesday to help clients make sense of markets after a week of wild swings for stocks and bonds.
“In the wake of a rather violent decline in yields, inversion of the curve, and volatility in equity markets, we consider the role of poor liquidity and systematic flows in exacerbating these market moves,” JPMorgan strategists led by Marko Kolanovic wrote in an invitation to clients obtained by Bloomberg. A spokeswoman for the lender confirmed the event.
The meeting comes after US equities suffered one of the deepest sell-offs of the year on August 14 and a key portion of the US Treasury yield curve inverted for the first time in 12 years, stoking fears of a recession.
Kolanovic and strategist Munier Salem plan to address the bout of unusual illiquidity in US equities and discuss the extent to which high-frequency trading is to blame for drops in market depth, according to the invitation. Joshua Younger, a fixed-income strategist, will lead a discussion on convexity hedging in rate markets.
The bank said last week that measures of market depth in US equities, Treasuries and currencies relative to the rest of the year have fallen below the average since 2010 — a sign that market players don’t have as much capacity to absorb the trade-driven trends sweeping assets. Some Wall Street trading desks have warned that the sudden rupture of volatility could cause quant-driven funds to dump billions of dollars of stocks.
The recessionary-risk trigger needed to drive Treasury yields towards zero has gone off sooner than expected and is accelerating the process by which the US may even join countries like Japan and Germany with negative rates, said JPMorgan Chase & Co.’s Jan Loeys.
The catalyst is the extended US-China trade war, which is leading to falling capital expenditures worldwide as corporations reduce or delay spending, he said. The Federal Reserve will likely be powerless to keep the US economy from falling into a recession and the 10-year yield could sink to zero by 2021, he said. That’s a year quicker than he predicted just last month.
“Given what’s happened in Europe and Japan, investors are saying, ‘We’ve seen this movie before and let’s position for it,’” Loeys, a senior adviser of long-term investment strategy, said in a phone interview. “The trigger happened sooner and the bond market is moving faster.”