Last week a unique event took place in the world of financial markets that was all major indices rising and ending higher from the bottom in the same week. The last time this occurred was mid-September 2023. The assets of these volatility indices were equities, bonds and commodities.
The previous time this pattern occurred the rising volatility trend lasted till the end of October 2023. With equity and crude oil volatility rising by 64-67% and bond volatility rising by 38%. This resulted in the US 10-year bond yield rising from 4.25% to 5% along with the equity index falling by 7%.
The most important event from a bond market perspective is the US inflation data release this week. Yesterday JP Morgan's CEO had cautioned against the widespread optimism and said there is an upside risk to rates as inflation is proving to be stickier.
From the equity market perspective earning season is about to begin and going in valuations are higher than in previous times. Along with this rising crude oil prices are pushing crude oil volatility higher which is being pressured by supply and demand issues with on risk of Israel and Iran proxy conflicts.
These factors continue to be uncertain and if they create disturbances in the coming months then the current level of volatility might be the bottom.
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