Michael Purves Talks Cross Asset Volatility

Summary

Bloomberg Talks – Michael Purves Talks Cross Asset Volatility

Date: March 18, 2026
Host: Bloomberg
Guest: Michael Purves, Founder & CEO of Talbot and Capital Advisors

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Episode Overview

In this timely discussion, Michael Purves delves into the complexities of cross-asset volatility amidst ongoing geopolitical tensions, notably the third week of the Iran crisis. He shares insights from his conversations with clients and examines how the current environment is shaping the relationships between equities, commodities, bonds, and currencies. The episode’s central theme revolves around the evolving risk environment, unusual asset correlations, inflation complexity, and what investors should consider in navigating such a volatile landscape.

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Key Discussion Points & Insights

1. Cross-Asset Correlations in a Geopolitical Crisis

(00:38–03:05)

• Unusual Correlation Patterns:
  Michael begins by highlighting how “cross-asset correlations” have reached unusually high levels, especially between crude oil and the VIX and between crude and high-yield spreads—both in the top 2% of readings over the past decade.

  • Quote (Michael Purves, 00:55):

    "For example, crude's correlation with the VIX right now... it's in the top 2% of all readings going back a decade. Crude correlations with high yield spreads, those are also in the top 2%."

• Stock Correlation Muted:
  Despite these elevated cross-asset moves, individual stock correlations are still relatively low, which suggests we’re not in a classic “risk-off” scenario.

  • Quote (Michael Purves, 01:49):

    "The cross stock correlations are still really kind of muted... So we’re not really in the sort of, you know, risk-off environment, but... crude is clearly driving the market."

• Contextualizing Market Reaction:
  Michael advises stepping back to see the bigger picture: after a strong previous year in equities, some late-winter malaise is natural, and today’s jobs report highlights deeper economic questions.

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2. Inflation Complexity & the Fed’s Dilemma

(03:13–04:47)

• Producer Price Pressures:
  The host references sharp movements in prices of commodities like urea, sulfur, and helium, which impact producer prices and will "weave its way" into broader inflation metrics in months ahead.

  • Quote (Michael Purves, 03:41):

    "All those things do… raise questions about, I think what the Fed has to deal with today is what I call inflation complexity."

• AI and Layoffs as an Inflationary and Deflationary Force:
  Companies are laying off workers due to AI automation—adding another layer to inflation complexity:

  • Quote (Michael Purves, 03:54):

    "You’ve got companies laying off a whole bunch of workers with AI… That’s part of the inflation complexity that the Fed has to deal with."

• K-Shaped Economy Exacerbated by Geopolitics:
  The so-called “K-shaped” divergence in the economy, where different sectors or demographic groups experience varying impacts, is deepened by events like the Iran crisis—making it hard to frame the outlook as simply recession or not.

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3. Currencies: “Petro-Currency” Dynamics & the Dollar

(04:47–06:33)

• Aussie/Yen as a Stress Proxy:
  The host references the unusual strength of the Australian dollar vs. the yen as a sign of “stress,” and questions whether the current spike is truly different from previous short-lived surges over the past 30 years.

• Relative Hydrocarbon Vulnerability:
  Michael pivots to discuss the U.S. dollar’s unique position due to U.S. energy independence, contrasting it to Europe and Japan:

  • Quote (Michael Purves, 05:36):

    "When you look at relative hydrocarbon vulnerability… the United States [is] very different than it was in the 1970s… So we’re not a petro currency, the US dollar, but relative to the yen and relative to the euro, we are."

• Currency Pairs & Petro Dynamics:
  The U.S. dollar's stability against the Canadian dollar reflects a shared energy profile, while the euro and yen are more susceptible to oil shocks. This dynamic is also mirrored in equity markets.

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4. How Long Might the Tension Last?

(06:33–07:31)

• Stochastic Nature of Tensions:
  The host asks if this is another short-lived spike, as is typical for Gulf crises.

• Possibility of Prolonged Volatility:
  Michael stresses that the duration is uncertain—referencing options market moves that suggest traders expect these tensions might persist longer than the usual brief “spikes.”

  • Quote (Michael Purves, 06:46):

    "Classic Gulf oil spikes… are temporary… but this may be not a two week thing. Maybe this tension will persist for, you know, a few months here."

• Long-Term Comparative:
  He draws parallels to the Ukraine conflict, which drove structural issues, especially in the Eurozone.

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Notable Quotes & Memorable Moments

• On Market Cross-Currents:
  • "We’re not really in the sort of, you know, risk-off environment, but we’re in… crude is clearly driving the market." (Michael Purves, 01:49)
• On Fed’s Predicament:
  • "What the Fed has to deal with today is what I call inflation complexity." (Michael Purves, 03:41)
• On Economic Divergence:
  • "There will be many things that magnify the economic divergence." (Michael Purves, 04:34)
• On Persistent Volatility:
  • "... this may be not a two week thing. Maybe this tension will persist for, you know, a few months here." (Michael Purves, 06:46)

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Timestamps for Important Segments

• 00:38–03:05: High cross-asset correlations amid geopolitical crisis; market context
• 03:13–04:47: Inflation complexity; impact of AI layoffs; K-shaped economy
• 04:47–06:33: Currency "petro-dynamics" and the differential impact on USD, EUR, JPY, AUD, CAD
• 06:33–07:31: Discussion on whether market tensions are temporary or may linger

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Tone and Style

Michael Purves’ approach balances technical detail with clarity, frequently stepping back to see the “big picture” while still addressing near-term tactical issues. The host maintains a conversational, occasionally playful tone (e.g., St. Patrick’s references, chemistry jokes), keeping the discussion lively without undercutting its seriousness.

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Summary:
This episode provides a nuanced look at how global crises ripple across asset classes, complicate the inflation outlook for the Fed, and may sustain cross-asset volatility for longer than classic “spikes.” Purves’ cross-asset perspective and discussion of economic divergence underlines the complexity facing investors and policymakers right now.

Transcript

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[Podcast Host]

Bloomberg Audio Studios Podcasts, Radio news Michael Purvis He's

a founder and CEO of Talbot and Capital Advisors. Michael, what are the conversations you're having with your clients these days? As we all were going into week three of this Iran issue here and it's been such a volatile time for financial markets, starting with the commodities markets. What's the one of the conversations you're having with your clients these days?

[Michael Purvis]

Well, one thing I think is that's I've certainly been doing is standing back and looking at sort of some of the cross asset correlations and how those are moving because I think those give clues as to what type of risk environment where we're, we're, we're edging into there. And so one of the interesting things here, you know, Thomas is referencing the Vix at 21, which is really not that high a level there. That's right in line with its long term average. There's, but at the same time, you know, you're seeing very high cross, cross assessor correlations. The for example, like crude's correlation with the VIX right now over the last several days, really since this attack, these attacks began, it's in the top 2% of all readings going back a decade. If you look at crude correlations with high yield spreads, those are also in the top 2%. And what's interesting about that is that high yield is now correlating with, with the vix, which it kind of correlated, it's supposed to be positively correlated. Right. You know, spreads back up vix, you know, when risk off happens. That correlation kind of broke down over the last 18 months for all sorts of interesting reasons. But now that correlation's coming back. Now as it relates to the vix, what's interesting also is that, you know, The Vix at 21, yes, it's been correlating with the crude prices, but the, the cross stock correlations are still really kind of muted. They've gone up a lot over the last couple of weeks, but they're not really high here. Right. And you're still staying on any given day. One stock can be in the green and a bunch of other stocks can be in the red there. So we're not really in the sort of, you know, sort of risk off environment, but we're in, you know, crude is clearly driving the market. So I think that gets to, you know, sort of begs the questions about how are you really trying to contextualize what's been happening here? I think again, you have to step back a little bit and just think, look, you know, we had a great year last year in the equity market. A late winter malaise is kind of normal without Iran. Right. That's something that could be expected here. We had a bad jobs report with some really important questions that were begged by the complex, the complexion of what jobs were being dropped, particularly in the, you know, sort of those pillars of job growth.

[Podcast Host]

The leadership today. What do you do? I mean, I mean, yeah,

[Michael Purvis]

artfully dodge as many questions as you can to get off the stage. But seriously, I think it's interesting, I mean, Tom was referencing urea prices, sulfur prices, helium prices. All these things will impact producer prices. That will sort of weave its way.

[Podcast Host]

Did you have inorganic chemistry freshman year in college? Did you go down in flames like I did? Continue on urea and ethylene. We need more methyl ethylene ketone if this continues.

[Michael Purvis]

Well, so, so no, but all those things do, you know, raise questions about, I think what the Fed has to deal with today is what I call inflation complexity. So you're going to see, love that. You're going to see producer feel that.

[Podcast Host]

Sure.

Okay.

[Michael Purvis]

Producer prices. Right. Are once again, you know, in some way similar to post Ukraine, some, some different. But those are going to linger and creep into, into the inflation metrics we see a few months from now. Right. And maybe longer than that. We don't know there. But at the same time you've got companies laying off a whole bunch of workers with AI. Right, right. So that's, that's part of the inflation complexity that the Fed has to deal with. And then of course the other dimension of, of the, the Fed has to contend with is this sort of K shaped economy. And in a way the Iran attacks almost worsen. You know, you have to, rather than think about, you know, this, this, this situation is like straits on, straits off. It's really not that binary. Nor is the fact that is it recession on, recession off. If you understand that in terms of the, the K, you know, there will be many things that magnify the economic divergence.

[Podcast Host]

Michael Purvis with this. His charm Besides a 12 week vacation in the summer is he really truly mixes in analysis of equities, bonds, currencies and commodities. So I've plotted Aussie yen is a Pacific rim proxy back 30 years observation 1, 2, 3, 4, 5. Six times in 30 years we've had two standard deviation plus strong Australia, weak yen in the word I use is stochastic. They're pointy, they go up their stress and they turn around and come down. Why is this time any different where this is the mother of all opportunities at 2.2 standard deviations at and the long trend and you go against this, this gloom, this zeitgeist that's out there now.

[Michael Purvis]

Well, I'm going to pivot that back to the dollar yen and dollar euro. I think one thing that's really apparent here is is that when you look at relative hydrocarbon vulnerability that is obviously today the United States very different than it was in the 1970s here. Right. So we're not a petro currency, the US dollar but relative to the yen and relative to the euro we are. And I think what you're referencing in Australia, some version of that theme here. Right. And so what have you seen? You've seen, you know I was before Iran, I was waiting for the euro to break 120, maybe go to 125. That worked out until Iran right there and now, now you're seeing that. Now if you measure say the US dollar relative to the Canadian dollar, that's really been very stable. Right? Yeah there. So there are sort of petro currency, I don't like the term but there are petro currency dynamics that are, that are, that are in that and it's also being reflected in the, in the equity markets.

[Podcast Host]

I got to wr but you're a young guy, can you state that usually these tensions are stochastic and they repeat in reverse always almost.

[Michael Purvis]

The question is, is, is. Yeah, classic Gulf oil spikes. You know they're temporary. You know gold shoots up, shoots back down the chart. Right, right. The Australian dollar shoots up relative to the yen and falls back. But the, the, the, the, the question we don't know is is and you saw this by the way in SPX options where the three months put policy finally caught up with a one month skew just the other day there that this may be not a two week thing. Maybe this tension will persist for you know, a few months here. And so following Ukraine, you know that was not sort of straights on, straights off type of dynamic that just kind of kept going. And yet it drove a lot of problems. For example, within the Eurozone. Right. Relative to the U.S. right.

[Podcast Host]

Did you survive St. Patrick's Day?

[Michael Purvis]

Yeah, mostly putting together charts. And I did have a green bagel, though, so.

[Podcast Host]

Michael Purvis Talbeck, thank you so much. Greatly appreciated.

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