Markets are calming, positioning risks have become more balanced: Barclays

Recent market turbulence is easing as reassuring consumer and employment data have brought calm, according to a Barclays report.

The bank says this stabilization has led to a decrease in volatility, with the VIX index returning to subdued levels.

Barclays attributes this calm to "reassuring consumer and employment data" and easing inflation risks, which have further paved the way for the "Fed to cut rates and assuage hard landing fears."

Earlier in the month, markets faced heightened volatility, driven by systematic investor de-grossing and concerns about an imminent US recession.

Barclays noted that weaker payroll data exacerbated these fears, but recent economic indicators, including US ISM services, retail sales, and jobless claims, have been reassuring.

The bank stated that "the sell-off was overdone," and as a result, market jitters have subsided.

"Naturally, this has helped calm market jitters and the VIX quickly reverted back to below 20x levels," they wrote.

The note highlights that both US and UK CPI data this week provided more evidence that inflation risks are easing.

Barclays believes this development could allow central banks to shift their focus towards employment and growth, with the pathway for easing monetary policy becoming clearer.

Barclays also observed that positioning risks have moderated. They had previously flagged concerns about the risk of an unwind due to negative news, but the recent de-risking has been sharp, and equity exposure has become more balanced.

The bank's analysts believe that if economic data remains stable and the Fed begins its cutting cycle, there is "room for systematic exposure to stabilize and turn around." The resumption of buyback activities after the blackout period could further support this recovery.

Source: Investing.com