Barclays announced earlier today a poor set of results mainly due to a 41% drop in revenues over at its FICC (Fixed Income Currencies & Commodities) business division. As reported here http://www.ft.com/intl/cms/s/0/f9dd1338-d4e6-11e3-adec-00144feabdc0.html#axzz30wtGgbfE & here http://www.ft.com/intl/cms/s/0/fe1c811c-d50a-11e3-9187-00144feabdc0.html#axzz30wtGgbfE in the Financial Times.

Hedge funds were not spared as April 2014 was reportedly the worst month for many (http://www.zerohedge.com/news/2014-05-05/cruelest-month-april-was-bloodbath-most-hedge-funds) in a long while especially for CTAs & Macro strategy funds that rely on heightened volatility & gyrations in market with trends to serve them well.  Even the legendary Paul Tudor Jones was lamenting last night at the Ira Sohn conference on the need for a ‘Central Bank Viagra’ to bring excitement back to the markets http://www.bloomberg.com/news/2014-05-05/-tudor-s-jones-said-macro-funds-need-central-bank-viagra-.html .

It is the recognition of such ‘dampened’ volatility and lack of trend breakouts or mis-pricings in the markets that saw Asianmacro laying low for a number of months.  From the chart above, where the upper panel white line is the JPM G7 FX vols minus VIX; has gone back close to zero since H2 2013 till present.  Typically VIX as a simple measure of S&P500 implied vols is usually much higher than FX vols especially during periods of financial market stress where equities tend to plunge faster & a lot more than FX directionality.  The bottom panel in the above chart is the normalised vol price of VIX & JPM G7 vols from 2006 before the pre-2008 crisis period till present. FX vols is in fact going back to almost the lows in 2007 just before the onset of the financial crisis.

Are we facing once again the calm before the storm? We could well be when the last crowded positions capitulate & it seems like the consensus strong USD & short US Treasuries trades of 2013 going into 2014 are being forced to unwound at great loss by banks & hedge funds …. we are getting close to the last inning.