Volatility story remains unchanged as VIX continues to drop
18 Aug 2020The CBOE Volatility Index (VIX) now stands at around 21 (as of 18 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 most recent lift in investor sentiment for an improving economic outlook for both Europe and the US is further helping bring equity market volatility down.
Gold surges past $2000/oz for the first time ever
10 Aug 2020Gold has surged past $2000/oz as pandemic uncertainty continues to dominate the horizon. The precious metal is now up over 34% year-to-date as investors are turning towards gold for both tactical and strategic reasons. Tactical investors are piling into gold futures and exchange traded products as a hedge against short-term risks of further economic damage from the ongoing pandemic. Investors remain aware that a vaccine breakthrough could take several months, and the economic recovery will be slow and difficult in the meanwhile. Equally, strategic investors are cognisant of the potentially inflationary scenario which may ensue once a vaccine is indeed developed but markets remain flooded with central bank liquidity. It might not be easy for central banks to withdraw liquidity very quickly and inflation could tick up. Gold will serve as an effective hedge in such a scenario.
Second quarter economic data makes no impression on US equities
10 Aug 2020The US economy contracted by over 9% year-on-year in the second quarter of this year. Initial weekly jobless claims for the week ended July 24th were 1.43 million – an uptick from levels earlier in the month. The worst economic contraction in a quarter since the second world war in the US economy had no effect on US equities which continued to push up during July and have maintained their positive momentum into August. US equities have yet again been lifted by strong earnings in the technology sector in the second quarter. Since the start of July, the S&P 500 Index has gained 8.3% while the tech-heavy NASDAQ Composite Index has gained 9.5% (as of 10 August on a total return basis).
European equities down as deep recession hits
03 Aug 2020European Union (EU) leaders announced a landmark €750bn fiscal stimulus deal on 21 July in a bid to help the economy recover from the ongoing coronavirus crisis. Markets were eagerly awaiting a coordinated response from the group, but the recovery package was largely priced in as negotiations had been ongoing among leaders for some time. After a moderately positive response initially to the announcement, the Euro Stoxx 50 Index is down around 5% (as of 03 August) since the close of 20 July. With economic data pointing to a deep contraction in the European economy in the first half of this year and second wave virus risks, European equities are yet to recover their losses from earlier this year and the Euro Stoxx 50 Index is still down 12% (on a total return basis year-to-date in EUR).
Key events coming up this week
03 Aug 2020The Purchasing Managers Index (PMI) is a useful indicator to measure the change in economic activity from one month to another. A reading above 50 signals expansion in activity while a reading below 50 implies contraction over the month. The index is typically available for the manufacturing and services sectors. Over the next week, several large economies will be releasing their monthly PMI numbers. Markets will closely be watching these announcements to gauge how well economic activity is picking up.
• Wednesday 05 August: Japan Services PMI
• Wednesday 05 August: France Services PMI
• Wednesday 05 August: Germany Services PMI
• Wednesday 05 August: Eurozone Services PMI
• Wednesday 05 August: UK Services PMI
• Wednesday 05 August: US Services PMI
• Friday 07 August: All Markets CFTC speculative positions
US treasury yields edge lower still as economic outlook remains uncertain
03 Aug 2020As infections continue to rise and economic challenges mount, US treasury yields continue to drop signifying the ongoing uncertainty. 10-year US treasury yields have dropped to just under 55bps – their lowest level since April this year. Similar declines are visible in 20 and 30-year treasury yields causing the curve to flatten further over the last month. The entire US treasury yield curve has had a significant downward shift since the start of the year on account of the monetary support from the US Federal Reserve (Fed) as well as investor demand for defensive assets amid economic and market uncertainty.
Volatility continues to settle despite risks
03 Aug 2020Rising geopolitical tensions between China and the US, a continuous uptick in infections and weak second quarter economic data have collectively failed to dial up US equity market volatility. The CBOE Volatility Index (VIX) is now around 25 as it continues to ease towards the average 2019 level of around 19. US equities maintained their positive momentum in July with the S&P 500 Index up 5.6% (over the month on a total return basis). As has been the trend so far this year, technology continues to lead the way in US equities.