The current steady perfomance in equity markets belies the extreme volatility and uncertainty in the the global economy as markets get seduced by central bank promises of action, Arnab Das of Roubini Global Economics told CNBC.
“Volatility in the markets is periodically being suppressed by central banks through QE (quantitative easing) or promises of bond buying are effectively short term sellers of volatility. It will rise once the effect of those interventions has gone,” said Das, Managing Director of Market Research and Strategy at Roubini GE.
Indexes globally have fared relatively well in recent weeks after a weak period which by June had seen losses of around 15 percent. They have since made up most of the losses. In the U.S. the S&P 500 recorded its 22nd straight day for closing neither up nor down by more than 1 percent on Wednesday.
Das added that the markets were now so intent on a solution to the euro zone debt crisis that they were forcing policymakers into a corner.
“The markets are pushing the euro zone into one corner solution or the other – either integrate or disintegrate. The fat tail risk rises sharply but then the central bank steps in and thins out the fat tails causing volatility to fall,” he said.
However, he added it was only a short term panacea because the underlying problems remain unresolved.
Rob Morgan, Chief Investment Strategist, Fulcrum Securities took a more optimistic tone and told CNBC that he felt stocks were cheap with earnings estimates beginning to rise.
“Going into this year we did think it was going to be a high volatility year so it is a little surprising. In particular U.S. stocks look cheap and there is a lot of negativity out there and as a result much cash on the sidelines,” he said.
Earlier, Marc Faber, author of “The Gloom, Boom & Doom Report” told CNBC that he expects European stocks to retreat by as much as 20 percent from recent highs.