Will Volatility Remain Low This Week?
Markets remained quiet last week
Global markets (VTI) remained range-bound for most of last week, which was shortened by the July 4th holiday in the United States. The US Federal Open Market Committee’s (or FOMC) meeting minutes offered no new insight into the Federal Reserve’s interest rate policy.
The markets continue to anticipate another round of tightening by the end of 2017, and a possible trimming of the Fed’s balance sheet is expected to begin in October 2017. There was limited volatility in the equity markets in the week, with the S&P 500 (SPY) closing at 2,425.0 (-0.61%), the Dow Jones Industrial Average (DOD) closing at 21,414 (+0.30%), and the NASDAQ (QQQ) closing at 6,153.08 (+0.21%).
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The week showed some continued disturbance due to North Korea’s missile test, but the overall sentiment remained positive for the global markets. A solid US jobs report, strong PMI (purchasing managers’ index) data from Europe (VGK), and a surprise-free G20 meeting helped the markets to sail.
Volatility was also low
The CBOE Volatility Index (or VIX) (VXX), which is a measure of market volatility, remained subdued last week, closing at $11.19 on July 7. Volatility remained low in the week compared to the 50% surge it saw one week earlier.
According to the Commitment of Traders report released by the Chicago Commodity Futures Commission, large speculators and traders have reduced their overall net short positions to 124,000 contracts from the previous level of 135,000 contracts. Traders have reduced their bets on volatility, but they remain short, which means that the markets are expecting volatility to subside even further.
Throughout this series, we’ll analyze how different asset classes reacted to last week’s events.