Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

VIX Asleep as Stock Market Weakness Escalates

Stock-Markets / Stock Markets 2016 Jan 15, 2016 - 04:04 PM GMT

By: Ashraf_Laidi

Stock-Markets

One notable reason the VIX is trading at only half the level seen in August (53.0), a time when equity indices plunged near today's levels is related to market's absorption of risk versus macro negatives.

The China devaluation of August 24 came as a complete surprise to financial markets, which were neither ready for the PBOC's FX manoeuvres, nor prepared for the dangers of rapid decline in the currency of the world's biggest buyer of commodities as they are today.


Indeed, the 98% jump in the VIX of August 24 was also propagated by soaring volumes of VIX and VIX-related products (VIX ETFs and leveraged ETFs), as well as high-frequency trading of these products by banks and algo firms.

Known unknowns

Setting the technical intricacies aside, markets in August were not positioned for a surprise from China and certainly not aware of the intricacies of the yuan's daily fixings and the implications of the onshore vs offshore pricing. At the time, the primary concern was whether the Fed would raise in September or December, as well as the more familiar emerging market concerns.

Today, the sources of market selloff and macro deterioration are not necessarily new or unexpected (tumbling CNY, falling CNY, disappointing macro data) but their implications for eroding capex, widening credit spreads, quantitative FX tightening by emerging markets and forced liquidations by Gulf sovereign wealth funds are more ominous and immediate for the market.

Metrics of Weakness, not Risk

Although the VIX remains inside the 20-40, a level considered as neutral, there are more relevant metrics of macro risk/weakness, namely more elevated high yield spreads (713 bps vs 560 bps in August 24 at 29% higher), flatter yield curve (10-2 spread at 1.19% vs 1.44% in August 24 at 17% higher), oil prices 23% lower and finally a substantially weaker readings in manufacturing and retail sales (see chart).

Complacency

Downside risks may more anticipated today but market participants, but their confluence and intensity has far reaching implications than five months ago. We expect oil prices to reach $17 (unchanged supply from Saudi to accommodate Iran's production, falling demand from the Gulf and China, halted exploration projects and policy easing from Canada) to accelerate the deflationary pressures and push the Fed back into negative interest rates in Q3 of this year.

US Retail Sales Y/Y %

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi CEO of Intermarket Strategy and is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" Wiley Trading.

This publication is intended to be used for information purposes only and does not constitute investment advice.

Copyright © 2016 Ashraf Laidi

Ashraf Laidi Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in