The rally thundering across markets has done more than just drive up prices, it has pushed down volatility.
Markets around the world have started the year on a tear encouraged by easing trade tensions, a more dovish-sounding US Federal Reserve and signs that China is bolstering its economy. Volatility gauges have responded.
The CBOE Volatility Index touched its lowest level in four months last week, while the Merrill Option Volatility Index, which monitors US Treasury options, is near a four-month low. The JPMorgan Global FX Volatility Index ended Tuesday at the lowest reading since April last year.
“Volatility instruments have all but completely normalized,” Westpac Banking Corp head of FX strategy Richard Franulovich wrote in a report on Tuesday, noting that relative levels of equity, bond, currency and high-yield credit volatility all declined significantly from late last year.
“It’s not too often that we see such coordinated levels of comfort. Usually when one market is calm, another is undergoing upheaval. There’s usually at least one outlier, unlike now when there really aren’t any,” Sundial Capital Research Inc founder Jason Goepfert said.
According to Goepfert’s analysis, when “volatility in everything” drops below 10 percent, 10-year US Treasury futures are generally positive up to a year out, while the VIX and crude oil tend to rise one month and two months out. The US dollar might weaken one to two months afterward.
Cantor Fitzgerald chief market strategist Peter Cecchini, who is among the most bearish on the S&P 500 with a 2,390 target, on Monday said in a note that he is watching for VIX front-month futures to drop below 15 to “confirm an overtly bearish view” on the gauge.
BTIG strategist Julian Emanuel sees depressed volatility as an opportunity. He recommends using options to maintain upside exposure to further potential gains in US equities without as much downside as an outright long position.
“Owning exposure through options makes a ton of sense to us” given how cheap they currently are, he said.
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by