Will Subdued Activity Drag Volatility Down?
Another lower close for the volatility index
Global volatility trended lower, as there was a lack of any surprises from the three central banks that announced their monetary policy decisions last week. Economic data reported during the week remained largely in line with expectations, leading to continued optimism in investor sentiment. The Bank of England announced an interest rate hike, and the Bank of Japan decided to continue with its ultra-loose monetary policy. All the major global indexes, barring China, recorded gains for the week ending November 3.
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US market performance
US markets were pushed higher by the continued print of improved earnings with the S&P 500 index (SPY) appreciating 0.58% for the week ending November 3. The Dow Jones Industrial Average (DOD) rose 0.82%, and the NASDAQ (QQQ) posted gains of 0.98% last week.
The US bond market (BND) regained some lost ground after the FOMC statement sounded a tad more dovish than expected. The US dollar (UUP) managed to hold on to its gains, aided by the relative dovishness of other developed economies’ central banks.
VIX index speculators continue to bet against volatility
The volatility index, the VIX (VXX), posted another lower weekly close amid heightened risk appetite and the lack of any negative surprises last week. The index closed at 9.14, depreciating 6.73% last week. As per the latest “Commitment of Traders” report released by the Commodity Futures Trading Commission (or CFTC), large speculators have decreased their overall net short positions to 145,300 from 148,748 contracts in the previous week.
With no major market events scheduled for the week ahead, there could be limited change to market volatility this week. The only source for an uptick in volatility could be from geopolitical risks, arising out of comments from President Trump during his tour of Asia.
In the remaining parts of this series, we’ll be discussing the outlook for different asset classes this week.