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Weekly Update: What's Making Markets Nervous?

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Weekly Update: What's Making Markets Nervous? PART 1 OF 7

These Factors Drove Volatility Higher Last Week

Volatility index rose 23% last week

Multiple events in different parts of the world led to an increase in volatility in global indexes last week. A key event that shook markets was the perceived discord between the House Ways and Means Committee and the US Senate, which could delay tax reforms. The Saudi Arabian anti-corruption measures and the Venezuela default uncertainty have added to the volatility in the commodity markets. Trouble was also brewing in the UK where news about a possible removal of Prime Minister Theresa May has also had an impact on the markets. Last week, most of the leading indexes saw an end to their continuous weeks of gains.

These Factors Drove Volatility Higher Last Week

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US market performance

US markets ended multiple weeks of gains with the S&P 500 Index (SPY) depreciating 0.21% for the week ending November 10. The Dow Jones Industrial Average (DOD) lost 0.50% and the tech-heavy NASDAQ (QQQ) posted losses of 0.20% in the previous week.

The US bond market (BND) lost steam after news of possible delays in tax reforms. The US dollar (UUP) also depreciated against the majors as markets reacted to the negative news about tax reforms.

VIX Index speculators continue to bet against volatility

VIX (VXX), the volatility index, bounced back from lower levels as fear returned to markets last week. The index closed at 11.3 with a rise of 23.5% last week. As per the latest Commitment of Trader’s Report, released by the Commodity Futures Trading Commission (or CFTC), large speculators have increased their overall net short positions to 153,309 from 145,3000 contracts in the previous week. The CFTC report was released on Monday, November 13, instead of Friday because of a Federal holiday.

The risk factors from the previous week haven’t receded yet and are likely to have some more impact on volatility.

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

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