The recent guidance from the Federal Reserve has provided a sense of calm to the market, but as we highlight in today’s macroeconomic briefing, this may simply be papering over the cracks of some significant risks that could easily overwhelm the softer tone. Blond Money, the go-to Brexit analysts, today look at volatility and explain why the ”short vol” trade has returned with a vengeance after the capitulation this time last year, and why they are wary as significant event risks loom, not least Brexit, but also derivatives losses at French banks that could result in some significant vol risk if losses need to be hedged quickly. This risk is perhaps being underestimated by the market, according to Viola Risk Advisors, who analyse the equity and debt of the world’s major global financial institutions. Systemic risk on these banks has risen significantly, and hasn’t yet been priced into their securities, they say. Switching to geopolitics, Forest for the Trees argue that the Fed’s shift is undoubtedly bullish for risk assets, all else equal. However, geopolitical developments suggest all things may not be equal. That’s because they see ever-growing evidence that the US National Security establishment appears to have decided to simultaneously de-globalize world markets AND accelerate a new Cold War with China. Investors are being too complacent about this currently. Also in today’s briefing we highlight a couple of interesting notes on European rates relative value from Unicredit and Oxford Economics. UniCredit finds better fundamentals for Spanish as opposed to French government debt. The problem is more of market perceptions: French debt has an entrenched conservative following, while Spanish paper is seen as exposed to Italian contagion. Oxford Economics takes it further and argues that Spanish “bonos” have in fact decoupled from Italian BTPs and now behave much more like French or German debt.