The volatility spike that is hard to forget
STOXX 600 up 0.2%
Swiss stocks underperform
Autos provide lift
Markets await Fed Chair Powell speech
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
THE VOLATILITY SPIKE THAT IS HARD TO FORGET
The carnage in markets just a few weeks ago seems like a distant memory, as a summer lull and optimism about potential Fed rate cuts prop up sentiment.
The STOXX 600 .STOXX is up about 7.7% and the S&P 500 .SPX is up almost 9% since August 5, when U.S. jobs data and the unwinding of the yen carry trade triggered a dramatic market sell-off. So have the moves of those days had any lasting impact?
Perhaps one event that will be harder to forget is the spike in volatility. The .VIX hit a more than four-year high of 65.73 points on Aug. 5, before retreating back to previous levels in the last few weeks.
For Bernie Ahkong, CIO Global Multi-Strategy Alpha at UBS O'Connor, the dynamic behind that day's spike means the VIX may be less of a useful indicator for determining how to think about equity markets.
"I do think the magnitude of it was essentially a function of exaggerated risk-adjusting behaviour from systematic, rules-based funds who would have had to do that whether the VIX was at 40 or 50 or 60," said Ahkong.
This technical dynamic lurking in the background means the VIX almost loses a bit of its significance versus history, he said.
August 5th's volatility spike was comparable to rises seen during 2008's global financial crisis, something that fundamentally didn't make sense to Ahkong.
"It's part of the reason why we under-reacted in adjusting our portfolio," he said.
The move higher would usually statistically predict markets would have gone down more.
But if the team at UBS O'Connor had focused on that as their primary indicator on Aug 5., they would have been selling a lot of equity risk, which would have then hurt the following day when markets rebounded.
"That's why I’m a little bit wary of being overly focused on that as one indicator," said Ahkong.
(Lucy Raitano)
*****
FRIDAY'S OTHER LIVE MARKETS POSTS:
EUROPEAN SHARES INCH UP, SWITZERLAND UNDERPERFORMS CLICK HERE
EUROPEAN FUTURES HOLD THEIR BREATH BEFORE POWELL CLICK HERE
BOJ'S UEDA BOLSTERS YEN. UP NEXT, POWELL CLICK HERE
Japan's core-core inflation dips below 2% https://reut.rs/4cDV24c
Graphic-Stocks on Powell's Jackson Hole speech days https://reut.rs/3AssQE1
European equities mostly higher, Switzerland lags https://reut.rs/3T1CDHT
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
