Equity Vol Depressed Despite Emerging Stresses

In this week's Macro Insight I discussed...

The VIX continues to collapse whilst MOVE remains elevated. Constant reassurance from the FED, vol target strategies and VAR model calculations are increasing risk appetite. Equity derivatives selling flows are back from variance swaps, to call overwrites to put spread collar buyers. Also the retail bid for calls has faded at the same time leaving a large supply/demand imbalance.

The RUT/NDX spread has had a 11% pullback from it’s highs in mid-March. Ahead of earning season, the strength in tech stocks and the difficult compatibles to last year might prove a headwind for further price gains. On the other hand, re-opening plays and value/cyclicals could regather momentum should the summer spending boom take place.

India COVID cases have now overtaken Brazil and further restrictions have been implemented. Nifty sold off 3.5% over the weekend. Longer term uptrend remains intact, but need to watch with caution. Brazil markets, both stocks and currency, remain weak.

US 10Y Bond yields have been stable, as markets have come to terms with higher inflation in the short term, but have given the FED the benefit of the doubt on it only being transitory. Bullard signals 75% vaccination rate could trigger Taper talk, June FOMC will be key.

Lots of macro data this week, US bank earnings kicking off, Powell speaks and Coinbase IPO.

DXY drifts lower on low volatility. EURGBP looks like a decent tactical sell after recent spike.

After staging an impressive bounce from 1680, Gold couldn’t get above the key technical level at 1760. We still favour the downside over coming weeks with a 1780 stop. Sentiment in Gold, however, seems very bearish, which could fuel a move up in Gold miners, so watch out!

Filmed on on Tuesday 13th April 2021.

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