In the past 24 hours there have been many speculations of a Fed emergency rate cut and due to this Fed rate swap market is now factoring in a 100 bps cut before year-end. Similarly, even the betting market has now raised the odds of 50bps cuts in September by 3 times.
This along with financial market reactions yesterday with VIX touching the April 2020 high of 60 has led to government and regulators being more concerned than before. Though some part of the fall has been recovered the question remains what caused it and will it fall again?
The focus should be on whether it will fall again cause given the various scenarios the worst has not even started to play out. This means the actual impact of unfolding can be much higher than now.
The worst scenario is where Iran and its proxies take major action against Israel and in return, it starts a ground invasion in Lebanon. In this case, Oil and other elements would react with a larger volatility scale with higher uncertainty of next.
If this does play out at the worst level in the coming weeks then the current levels can be best-case returns despite the start of rate cuts that might help only short relief if any.
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