Next Week Economic Calendar
14 Sep 2020Key events on the calendar in the coming week are as follows:
• Tuesday 15 September 2020 IEA Monthly Oil Report
• Wednesday 16 September 2020 UK inflation
• Wednesday 16 September 2020 US Federal Reserve Decision on Policy Interest Rate
• Thursday 17 September 2020 Eurozone inflation
• Friday 18 September 2020 Germany inflation
Note: IEA stands for International Energy Agency.
Uptick in VIX as tech stocks sell-off
14 Sep 2020The recent sell-off in tech stocks has been accompanied by an uptick in the CBOE Volatility Index (VIX). The so-called ‘fear index’ rose from around 26 at the end of August to over 33 on September 03 suggesting that investors turned towards options to trade US stocks. Volatility levels have, however, subsided again in the second week of September. VIX October futures remain elevated as markets expect increased uncertainty heading up to the US presidential election in November.
US tech stocks pull back after a strong run
14 Sep 2020US technology stocks have pulled back from record highs in the first two weeks of September. The tech-heavy NASDAQ Composite Index is down over 7.8% as of 14 September (on a total return basis) while the S&P 500 Index is down around 4.5%. Despite the retreat in September, the NASDAQ Composite Index is still up around 22% year-to-date while the S&P 500 Index is up around 4.8%.
US treasury yields relatively unmoved despite equity market action
14 Sep 202010-year US treasury yields have moved relatively sideways in the first 2 weeks of September despite the sell-off in US equity markets. This indicates that the macroeconomic outlook has not changed fundamentally in recent days. 10-year US treasury yields are around 66bps – roughly around the level they have traded at since April. Low long-term yields signify the market’s expectation that the US Federal Reserve (Fed) will remain accommodative for a long period.
Italian BTP yields edge lower still as economic outlook improves
24 Aug 202010-year Italian BTP yields have fallen to around 95bps compared to a peak of over 2.4% around the peak of the pandemic in March. The spread of Italian BTP yields relative to German bunds has narrowed concurrently over this period as the economic outlook for Italy has gradually improved. Italy’s manufacturing and services Purchasing Managers’ Indices (PMIs) reached expansionary territory in July – a positive sign for the economy, while consumer and business confidence indicators have also improved over the last three months.
S&P 500 Index hits record highs
24 Aug 2020US equities have maintained their positive momentum since March with the S&P 500 Index achieving a new record high. The index is up over 6% year-to-date on a total return basis rebounding strongly since the drawdown in March. The tech heavy NASDAQ Composite Index is up nearly 27% this year highlighting the ongoing strength of the technology sector. Gradually improving economic data, hopes of a virus vaccine and expectations of additional fiscal stimulus from the US government are the key forces fueling the positive momentum in US stocks.
Volatility remains low as US equities hit record highs
24 Aug 2020The CBOE Volatility Index (VIX) now stands just above 22 (as of 24 August). In contrast, the average level of the index over 2019 was around 15. The so-called ‘fear index’ has continued to ease since it spiked sharply to over 80 in March this year pointing to a steadily improving risk sentiment in markets. The improvement in equity market risk sentiment is broadly in line with the improvement in economic growth sentiment since March.
European equities make gains as outlook improves
18 Aug 2020European equities are making gains in August on improving expectations of economic growth. The ZEW Expectations of Economic Growth indices for both Germany and Eurozone have improved further in August providing a boost to investor sentiment. Further support is coming from optimism around the development of a vaccine and the deployment of the recently agreed €750 billion fiscal stimulus from the European Commission. The Euro Stoxx 50 Index is up over 4.5% month-to-date in August (as of 18 August).
Gold and silver rebound sharply
18 Aug 2020Following a pullback last week, both gold and silver have bounced back strongly so far this week. Gold has surpassed $2000/oz yet again while silver’s spot price now stands just above $28/oz. The steady improvement in both economic growth sentiment and market risk sentiment has been ongoing since March. Investors have continued to add gold and silver to their portfolios due to the balance they offer. As sentiment improves, gold offers a hedge against rising inflation while silver benefits from increased industrial demand. If sentiment deteriorates, gold and silver provide downside protection as safe-haven assets.
US treasury yields edge higher as risk-on sentiment takes hold
18 Aug 2020On Tuesday, 11 August, positive risk sentiment prevailed in markets as optimism grew around an improving economic outlook and vaccine breakthrough. This triggered a sell-off in safe havens causing long-term treasury yields to edge higher and the US treasury yield curve to steepen. The 10-year US treasury yield is now around 67bps (as of 18 August) compared to around 50bps on 06 August. US economic data, however, remains weak with unemployment at 10.2% in August compared to 3.5% earlier this year in February. US treasury yields still remain extremely low relative to where they were at the start of the year. The 10-year treasury yield was around 1.9% at the start of 2020.