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It's now 'America First' when it comes to market volatility


AS THE world's largest and deepest equity market, the US tends to be the relatively steady hand among volatile peers. Not anymore.

The country is at the epicentre of global market anxieties from trade to monetary tightening and an economic slowdown. The US gauge of future volatility, the VIX, has exceeded the equivalents in Europe, Hong Kong and even emerging markets a few times over the past month. This is an anomaly that has become more commonplace since the market selloff in February 2018.

And it's not just a matter of expectations. In terms of historical swings, the S&P 500's 20-day realised volatility jumped to the highest versus the Euro Stoxx 50's since the financial crisis, and the highest versus the Hang Seng Index in seven years.

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Catalysts from across the pond "have been the drivers of this correction," said Ankit Gheedia, a strategist at BNP Paribas SA in London. "There have been a lot of concerns about a US slowdown, the US tech sector, how inflation affects profitability."

While US stocks initially took trade tensions in stride to lead global gains, confidence started to buckle in October amid growing fears that rising rates would weigh on growth. Soon thereafter, other risks became more salient: the unresolved trade conflict with China, a slowing tech sector, and a partial government shutdown - all coming from America.

With monetary conditions tightening, economic momentum slowing, and as the opposition takes the helm of the House of Representatives, concerns about US political risks are rising, according to Maarten Geerdink, head of European equities at NN Investment Partners, which oversees about US$277 billion in assets.

"Donald Trump seems to be playing chess on multiple boards at the same time with the Chinese, with the Democrats, with the Europeans, with the Russians and so forth," he said. There is a bit more political risk now, compared with the past year, "simply because the economy seems to be switching one gear lower". BLOOMBERG