Mohamed A. El-Erian , Columnist

Markets Struggle to Price In Year-End Uncertainties

Political turbulence in the U.S. and Europe isn't reflected in investors' assessments of risk.

October 5, 2016 at 6:00 AM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

Diminished outlook.
Photographer: Zach Gibson/AFP/Getty Images

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As investors position themselves for the final quarter of the year, markets have yet to price in the incertitude ahead. There are three reasons for this; all are related to the inherent difficulties of accurately determining risk premiums in this context of unusual economic, financial and political uncertainty.

These developments suggest greater market volatility in the final quarter of the year. The most sensitive segment will be foreign exchange, especially given the unusual economic and political uncertainties affecting trading relationships that have been deeply ingrained in economic and financial structures. This is also the market segment that, at least in relative terms, is least sensitive to central bank volatility suppression.