In last three trading sessions VIX has almost doubled from a low of 16 to high of 30. The crude oil OVX has increased from 28 to 40. Japan equity index VIX has risen from 20 to 47. And others too have risen drastically. This only started day after BoJ and FOMC meetings where Japan increased rates and Fed moved towards two side mandate of employment and inflation.
In addition to this Israel and Iran proxy escalation is an overhang that has kept everyone on toes since Friday. Even some tensions in UK and Bangladesh have added uncertainty.
All these scenarios have resulted in Fed rate swap market to factor a 50 bps rate cut in September with odds now at 92%. Even Goldman Sachs raised US recession probability to 25%.
Whether these are overreactions due CTA ( Algo ) funds levels being triggered or there is more to it ? This would be answered in few weeks to come as US election gets closer.
Crucial thing to be aware is that Iran still remains committed to an action but nothing has happened yet. There is a technical support from US Buyback window that would open over next few weeks while the index etf is at weeks low.
There is one thing for certain that uncertainty and hence volatility will remain high over next few quarters are economic, geopolitical and other impending trends unfold.
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