Enjoy it while it lasts, 'cause it never does
The canary in the calm water...
Lou Mannheim and experienced seafarers know, calm waters never last forever. It has been the best of times from a volatility perspective over the past few months cross-assets and especially so in FX and equities. Astute readers of TME know that we now are leaning to being long equity volatility. Let's have a look at some "best of times" charts and the canaries showing that it might be coming to an end.
Tight volatility regime
G10 volatility hit bottom in June; volatility regime prevailing since February 2022 is still in place, says Soc Gen.
Source: Soc Gen
FX volatility has been rather calm
Despite some notable moves in the dollar over the past months, major FX vols such as JPY and EUR vols have mostly threaded water.
Source: Refinitiv
Minimal tail
The perception of tail risk is now back at pre-Ukraine minimal level.
Source: Soc Gen
Very little volatility in macro lately
The GS US MAP index of economic surprises has hardly moved in the past few weeks.
Source: Goldman
Rates volatility
Volatility of front-end rates kept normalising despite sticky back-end rate volatility.
Source: Goldman
Remember 1.5% sell-offs...?
91 is the number of trading sessions since at least a 1.5% sell off session in SPX. This length of time without a 1 day equity shock is rare ... has happened ~five times in the last 15 years.
Source: GS trading desk
Closing in on complacency
MS Global Risk Demand Index has risen rapidly to +1.7, nearing the traditional complacency level of +2, driven by the sharp drop in volatility, with the VIX back below 14 and bond volatility at 1M low. High, but still far from the most extreme levels.
Source: Morgan Stanley
Will it spill over?
Apple volatility continues exploding to the upside. These are very aggressive moves for the world's biggest company. Last time VXAPL was here, the VIX was around 19 (not an accurate logic, but still makes you go a bit hmmm).
Source: Refinitiv
Watch sudden "exotic" FX moves
You don't trade the VIX on the back of MXN volatility, but you pay close attention to whether or not something is going on beyond just the "simple" stuff...
Source: Refinitiv
Complacent about the BS?
Fed's BS has come down rapidly post the SBV collapse. Same goes for the VIX. Equity fear getting complacent?
Source: Refinitiv
VIX seasonality
Time to get busy...
Source: Nomura
See TME's daily newsletter email above. For the 24/7 market intelligence feed and thematic trading emails, sign up for ZH premium here.
