VIX spikes higher on fears of market correction

Wednesday, August 06, 2014

US markets faltered yesterday, erasing a large portion of Monday’s gains as geopolitical tensions took centre stage once again. Both the S&P 500 and DJIA spent the entire session under pressure as unease between the West and Russia grew after reports of increased Russian troop movements on the border with Ukraine heightened risk aversion. The imposition of tougher sanctions by both the EU and US saw the MICEX shed over 10% throughout July and with the possibility of retaliatory measures from Moscow investors will react acutely to hints of further selling off which could prompt a larger correction in global markets.

Adding impetus to the sell-off in US markets the release of stronger than anticipated macro data saw further risk aversion as the potential for a sooner than expected interest rate rise rose in prominence. Stronger factory orders in June which accelerated 1.1% m/m from the previous month’s contraction of -0.6% m/m, as well as a steadily improving ISM non-manufacturing composite index which beat expectations of 56.5 to post a reading of 58.7 in July swelled the ranks of market participants who view a rates rise sooner than expected.

The VIX surged back towards 16.90 after spiking to a three month high at the start of the month as risk aversion increased. Volatility in the S&P 500 as measured by the VIX reached a year-to-date low in early July as the index dropped to its lowest levels since early-2007. The bearish mood extended to the Asian session, with Japanese benchmark indices once again leading the move lower as the TOPIX posted a lower close for the fifth straight session.

The LME released its first commitment of traders report yesterday, comprising of five reports for each day of the previous week with the highlight of the inaugural report indicating a bullish outlook for zinc. According to the 8th August report, money managers held a total of 135.849 long positions in zinc representing almost 30% of the open interest. Subsequent reports which will be released each Tuesday can be found on http://www.lme.com/en-gb/metals/reports/commitments-of-traders/.

MICEX remains under pressure

INDEXCF Index MICEX Index Dai 2014 08 06 07 22 05 

VIX spikes higher after touching lowest levels since 2007 in July

VIX Index Chicago Board Options 2014 08 06 07 35 44

Events for today

0600

JP

Jun

Leading Index

0700

DE

Jun

Industrial Orders

0930

UK

Jun

Industrial Output

0930

UK

Jun

Manufacturing Output

1330

US

Jun

Trade Balance

1500

UK

Jul

NIESR GDP Estimate

1530

US

w/e

EIA Energy Stocks

 

 

Topics: Equities, VIX, LME, Zinc
More from: Kash Kamal