The Year So Far
Mini banking crisis.
Inflation reducing somewhat, but causing issues from rate rise speed.
War in Ukraine looking like its there for the long run.
Developments in AI and quantum computing, which will continue.
The digital world continuing to challenge finance - but slower perhaps than I thought.
A nasty natural disaster (earthquake in Turkey) - A human tragedy, but not a financial issue.
Only in climate change has there been a little more positive sentiment to making change happen, relative to the market expectations (though keeping to a 1.5deg rise looks unachievable).
A scary set of predictions from December already looking prescient... It's probably luck of course; and there's a lot more of the year to come. A year is a pretty arbitrary measure after all.
The Rest of the Year
I worry about this mini banking crisis. It may become a major crisis. Today I don't think it will. You never know, but a major crisis is more of a possibility than I like. The outcome will be more liquidity buffers from regulators; with the market focussing more on business models (see my prior note) and clarity of bank strategy. Good bye to AT1s.
A volatile equity market will continue, and we may not have seen the bottom yet. But I don't see an equity crash and I don't see the banking issues becoming systemic. Equity volatility and risk volatility will remain. This will continue to exhibit itself in markets where leverage is held, however safe-seeming the assets are.
FX trading volatility may be higher in the rest of the year. Central banks are stuck wanting to unwind quantitative easing, raise interest rates, encourage growth and to avoid losing market confidence from losses on their security holdings. It doesn't add up to an easy time for central banks. The outlet is FX; and hence volatility in the market.
Cyber risk is increasing significantly. This is an outcome from the Russia/Ukraine War in most scenarios, as most scenarios increase the isolation of Russia or increase the use of Cyber as a retaliation vector.
A hot summer seems possible. I say this as much as a reaction from the cold end to March. Given climate change this is hardly revelatory. Nor is this prediction based on anything more solid than that.
I have been writing some short thoughts on CS and SVB. But other things stopped me from publishing it quickly and times move fast. I may add this in a week or so. Also I have started writing short pieces on Risk Management. Another thing to look forward to in April.
Lewis O'Donald
lewis.odonald@arborealriskadvisors.com
Founding Partner
30th March
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