A trader works during the U.S. Federal Reserve Federal Open Market Committee (FOMC) rate decision, on the floor of the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Jin Lee/Bloomberg)

State Street to Wall Street: Stock Volatility Is Set to Spread

(Bloomberg) -- Just as JPMorgan Chase & Co. was bemoaning on its Friday earnings call how stock volatility hasn’t helped reignite fixed-income, currencies and commodities trading, State Street Corp. was warning how that’s all about to change.

Swings in equities will increasingly creep into other markets -- particularly foreign exchange -- in the second half of the year, Lee Ferridge, State Street’s head of macro strategy for North America, said in an interview. Traders are already seeing such a shift in emerging markets like Brazil and Turkey, he said.

Some investors have pinned the recent moves in the real and the lira -- both of which have lost more than three percent versus the dollar over the past two weeks -- on idiosyncratic factors. But Ferridge says markets have fundamentally changed this year as central banks withdraw liquitity from the system.

“On the liquidity front, the real focus for me has been on the second half of the year,” which will actually record a net drain as the European Central Bank looks to wind down its bond-buying program, Ferridge said. Currencies should then be even more susceptible to volatility permeating from equities.

JPMorgan said that first-quarter adjusted revenue from fixed income, currencies and commodities was about the same as a year earlier, despite a jump in revenue from trading stocks. On a conference call to discuss results, Chief Financial Officer Marianne Lake said the “volatility in equities didn’t really spill over that much.”

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