VIX Creeps Higher As Trump Talk Trashes Equity Markets
Stephen Innes | Aug 11, 2017 12:40AM ET
US political uncertainty and North Korean sabre-rattling has lit a fire under the comatose VIX volatility index which popped above 15% overnight. The geopolitically influenced global stock market thrashing has driven investor angst into overdrive as volatility is back in vogue it seems, thanks to the escalation of North Korea-US rhetoric.
Forex markets, however, have kept their composure in the face of US 10y yield moving below 2.22% and a very soggy S&P which closed -1.45% at the final tick.
The equity markets are in risk reduction mode as investors move to secure liquidity with speculators exacerbating moves through tactical shorts. Considering the limited steps in forex, the signals suggest we’re in the midst of a global risk asset consolidation as opposed to a deeper retreat, however.
On Fed speak, most certainly the market was hoping for some upbeat assessment from Fed Bill Dudley, but it’s silly to put the blame game on him when in reality the market attention was focused elsewhere. Not to mince views here, it was Trump talk that trashed the equity markets, nothing more nothing less. The Fear Index (VIX) started creeping higher yesterday as the White House, which is a perpetual state of discord these days, appeared to contradict Secretary of State Rex Tillerson’s attempt to defuse North Korean tensions.
US data didn’t help as PPI and core prices have underwhelmed, but the producer indicator is a whippy measure and far too volatile to hang one’s hat. But traders will now focus on US CPI later today where risk is indeed tilted lower as core inflation has disappointed for four consecutive months. While a stronger print will likely buttress Fed repricing expectation, the all important CPI print could play second fiddle to risk reduction as traders will move to safe havens of flattening positions defending against possible weekend war mongering headline risk. Risk aversion looks to remain stubborn for the foreseeable future.
Japanese Yen
The market had moved below the key 109.20 level at pixel time, and given the speculative flows positioning for possible yen repatriation, where we could see the psychologically significant 109.00 level give way. This week’s close will be a key signal for market momentum. However, FX markets have been rather immune to the global equity swoon as we’re only down 75-80 pips from yesterday’s Asia levels suggesting forex players are not entirely buying into the North Korea bluster just yet, but headline risk remains on high alert so fasten up as this could get interesting. Perhaps a Freaky Friday in the making.
Euro
Pedestrian times on the euro post these days as trade continues to be very uninspiring. The markets have trimmed their euro bets and preparing for a consolidation phase ahead of Jackson Hole.
Get The News You Want
Australian and New Zealand Dollar
It’s been more of an NZD story line after the rancid (for the NZD) whiff of intervention was espoused by the RBNZ. The trap door has been sprung, and I wouldn’t be surprised to see a near term test of .7200 after all is said and done.
The AUD is similarly threatening to break lower on risk aversion, but so far the market is still nervously buying dips. But with no sign of geopolitical headline risk abating, the risk sensitive Aussie dollar remains vulnerable to further global equity market swoons.
A break of .7830 (2016 high) would sound off considerable alarm bells while triggering waves of stops. Given the uncertain landscape, the long Aussie is fraught with peril heading into week's end.
Similarly, Governor Low sounded the intervention bell – although not prepared to intervene at the moment, he will do so in ” extreme” situations.
Chinese Yuan Complex
It appears the long USD/HKD (HIBOR vs. LIBOR) carry trade unwind is befitting the RMB complex as repatriation flow accelerated into mainland after the HKMA announced that it would issue HKD40bn of Exchange Fund Bills to absorb excess liquidity. Yesterday’s H-shares moves were likely exacerbated by fast money seeking better opportunities in PRC.
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.