Scary Present Versus Bright Future
FxPro Financial Services Ltd | Apr 29, 2020 05:23AM ET
Financial markets returned to growth on Wednesday morning, despite the decline in demand for risk assets at the end of the previous day. Futures on S&P 500 added 1.3% on the back of further upward movement of China and Japan stock indices due to quarantine measures easing in different parts of the world. At the same time, there is a rather unusual situation in the markets.
The difference between the prices of closer and longer-dated futures has grown sharply since last week and remains exceptionally high. June contract priced Brent oil at $20.5. The July contract is slightly higher ($22.7). The December contract is already at $30.9 (+50%). Contango is the norm for the commodity market, as this price includes storage costs. However, this gap is too high now. Investors are pricing in restoring the balance of supply and demand. Moreover, before March there was a backwardation in the market.
The situation with VIX futures is similar. For it, the norm is higher levels for longer-dated contracts: the further the maturity, the higher the uncertainty, which attracts a higher risk assessment. The situation is quite the opposite this time. December futures on VIX from the end of March remain below the closer-dated futures. Longer-dated contracts are constantly below the nearest futures since late February when markets began to fall aggressively in fear of the coronavirus.
The US consumer confidence index released yesterday fits this pattern. The index’s sharpest monthly decline (far from recessionary levels, however) coincided with quite high consumer expectations.
It looks like the present is covered with fog, while the future is a better version of what is happening around us, drawing in more colorful tones. This is very good for the economy. But there are still risks that this optimism will face grim reality in the coming months.
Get The News You Want
The FxPro Analyst Team (NYSE:TISI)
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.