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.
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Her white-gloved, waistcoated uniform impeccable, 22-year-old Hazuki Okuno boards a bullet train replica to rehearse the strict protocols behind the smooth operation of a Japanese institution turning 60 Tuesday. High-speed Shinkansen trains began running between Tokyo and Osaka on Oct. 1, 1964, heralding a new era for rail travel as Japan grew into an economic superpower after World War II. The service remains integral to the nation’s economy and way of life — so keeping it dazzlingly clean, punctual and accident-free is a serious job. At a 10-story, state-of-the-art staff training center, Okuno shouted from the window and signaled to imaginary colleagues, keeping
FALLING BEHIND: Samsung shares have declined more than 20 percent this year, as the world’s largest chipmaker struggles in key markets and plays catch-up to rival SK Hynix Samsung Electronics Co is laying off workers in Southeast Asia, Australia and New Zealand as part of a plan to reduce its global headcount by thousands of jobs, sources familiar with the situation said. The layoffs could affect about 10 percent of its workforces in those markets, although the numbers for each subsidiary might vary, said one of the sources, who asked not to be named because the matter is private. Job cuts are planned for other overseas subsidiaries and could reach 10 percent in certain markets, the source said. The South Korean company has about 147,000 in staff overseas, more than half
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