How Will Central Banks Affect Markets This Week?

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How Will Central Banks Affect Markets This Week? PART 1 OF 8

Will Volatility Pick Up This Week?

Volatility Index dropped again

Market volatility remained low last week with the S&P 500 Volatility Index posting another weekly lower close. For the week ending October 28, news related to developments surrounding tax reforms kept volatility at bay. The Trump administration is now moving closer to tax reforms, and the House Ways and Means Committee is expected to release a tax bill on November 1. The other support factor for markets last week was the surprising uptick in US GDP to 3.1% for the recent quarter despite the impact of hurricanes in some parts of the nation.

Will Volatility Pick Up This Week?

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US market performance

US markets were pushed higher by the factors discussed above, and the S&P 500 Index (SPY) appreciated marginally by 0.23% for the week ending October 27. The Dow Jones Industrial Average (DOD) rose 0.45%, and the tech-heavy NASDAQ (QQQ) posted gains of 1.1% in the previous week. The US bond market’s (BND) troubles continued as prospects for tighter monetary conditions improved this week. The US dollar (UUP) appreciated against most of the major currencies, posting its fourth consecutive week of gains.

VIX Index speculators continue to bet against volatility

The VIX (VXX) returned to weakness as optimism and economic data supported market sentiment. The index closed at 9.8, depreciating by 1.7% in the previous week. As per the latest commitment of trader’s report, released by the Commodity Futures Trading Commission (or CFTC), large speculators have decreased their overall net short positions to 148,748 contracts from 168,571 contracts through Tuesday, October 24.

These numbers were recorded on Tuesday and speculator positions could have changed in response to the developments surrounding the tax reforms and the rise in optimism after the quarterly GDP numbers were announced. Central bank meetings in the US, Japan, and the UK could have an impact on market volatility, but the key event will likely be the tax reform bill being presented on November 1. Overall, bias remains for volatility to remain subdued for the week ahead.

In the remaining parts of this series, we’ll discuss the outlook for different asset classes for this week.


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