Market volatility has been on the rise as US-China trade tensions continue to flare and recent central bank activity has created more questions than answers. As such, many investors have been on edge. Franklin Templeton Multi-Asset Solutions CIO Ed Perks, and Gene Podkaminer, Head of Multi-Asset Research Strategies, present the team’s latest thoughts on where the global economy is headed—and how investors should think about risk today. They say the persistent uncertainty calls for a cautious and nimble stance.

The question of “where do we go from here?” appears to be on the lips of trade negotiators, central bankers and investors worldwide. The more that people scratch their heads and wonder what happens next, the more likely it is that two things happen: the yield on perceived safe-haven assets declines, and the price of insuring against uncertainty goes up.

We believe that a return to long-run levels of market volatility since early 2018—rather than the muted levels seen for much of the past 10 years—indicated that we have entered a new risk regime. Taken together with the ongoing headwinds to global growth, we are not surprised to have seen sharp moves in financial assets and a rise in expected volatility.

But what is the impact on the global economy; where is it headed? Many of our concerns have remained the same through the first half of 2019. Few have been resolved. Simmering concerns over the European auto sector and arguments over the level of tax to be paid by online businesses generating profits in foreign markets demonstrate that uncertainties look set to remain elevated.

Most notably, trade relations between the United States and China have seen a marked breakdown in trust, despite a decent working relationship between Presidents Donald Trump and Xi Jinping personally. The truce they brokered just a few weeks ago, at the meeting of G20 leaders in Osaka, has been superseded by the announcement of new tariffs on Chinese goods imported into the United States.