Here’s this month’s commentary on S&P Dow Jones risk & volatility index dashboard:
- Calm has returned: VIX closed at 11.77, its lowest level for over a year.
- Along with VIX, nearly every volatility measure is down since our last report. The greatest falls were in short term U.S. equity volatility and in British pound sterling volatility.
- The exception was provided by the Japanese yen. Yesterday’s close of 17.46 for JYVIX was the second highest this year, and only the fourth time since 2008 that the JYVIX has closed above 17. The volatility in the yen reflects the market’s uncertainty over a potential stimulus package that was previously expected – and now not quite as certain – from the Bank of Japan.
- At the start of the holiday season, the global outlook is generally suggestive of a quiet summer. Only the Japanese yen, British pound and Japanese government bond volatility indicators closed above their trailing 200-day averages.
- Excluding Japan, those looking for grounds for concern might note the increasing correlations between U.S. equities and bonds, and between U.S. and European equities. The higher correlations are further evidence that current markets have been primarily following macroeconomic events as opposed to fundamental drivers, and as such could be more fragile to further shocks from a tense political climate.
- With the fall in volatility, VIX futures have moved into steep contango. The 11% difference between the August and September futures suggests that longer-term futures may prove more efficient hedges in the short term.