VIX holds up as stocks rally continues

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

Last week markets had a pullback on China economic weakness confirmed by authorities easing reserve requirements and COVID variants on the rise in Europe. US bond yields collapsed to fresh cycle lows around 1.26% signalling the global growth recovery has likely peaked. Equities and Commodities sold off sharply and the dollar squeezed higher. This move however, completely reversed in US stocks the very next day as technology stocks led the recovery and dragged SPX back into the dealer long gamma zone.

Despite the recovery in spot prices, the VIX has made higher lows and found a floor around 16. This type of spot/vol correlation often signals a potential reversal. We would expect to see more supply of Vega hit the street this week into July OPEX, so it will be telling if the VIX still cannot break the recent lows. As we get closer to July FOMC and Jackson Hole, which will be potentially pivotal dates for FED policy, the VIX may start to be supported as it will contain a volatility inducing event.

US bank earnings this week should give a read on lending growth and guidance going into H2. Macro data will take a back seat with JPM and Goldmans, Well Fargo, Citi and MS all reporting. Price action in these stocks will be important this week.

The June CPI beat expectations and helped fuel further upside in the USD after being rangebound last week. 93.5 is the first target in DXY will support at 91.5.

Oil markets pulled back sharply after OPEC+ failed to reach a compromise last week. Gold also has been struggling to gain any momentum despite lower real yields and Copper has rejected resistance and continues to consolidate.

Filmed on on Tuesday 13th July 2021.

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