Stefano Sciacca

Fri, Aug 16

The return of volatility shows concerns over weakness and further uncertainty in the market

The markets are behaving like we haven’t seen since the May drop and significant fall seen in December last year, where a global equity sell-off lead to an S&P 500 price correction of around 20% in a circa 1-month time period. Since that time, we have seen the major US index steadily ramping up to its highest peak of 3,027 in mid-July. Subsequently, the index has suffered a price drop of 6% to 2847. In the meantime, the iShares Investment Grade IBOXX Corporate Bonds have rallied almost 3%, and there has been a 6% bullish trend for Gold. What has finally caught investors’ eye is the spike in volatility and especially, the even more rare volatility of volatility the VIX (the S&P 500’s 30 days implied volatility index). The VIX is now consistently above the 19/20 level, having broken the 24.5 level one week ago. We do however remain well off the December and February 2018 peaks of 36 and 39, respectively. This return of volatility might give us sign of concerns over weakness and further uncertainty in the market, this is confirmed by the prolonged bullish trend seen in both Investment Grade bonds and Gold. 

We seldom see an intraday rebound of 100 or 150 basis points in the major European or US indexes, like the DAX, CAC 40 or the FTSE 100. But this was exactly happened last week during the Twitter tirade launched by US representatives against China’s government. This was then followed by China allowing their currency to devalue past the 7.0000 level against the US Dollar. Investors seem nervous and are sharply reacting to any rumour or speculation reported on the two parties. The biggest catalyst of the events was the 10% tariff postponement from the US. This alone rebounded the European market (Eurostoxx 50) by 170 bps within just 2 hours. The reaction immediately attracting around €33.4bn back into the market.

Italian current geopolitical tensions and BREXIT uncertainty have also fuelled market turmoil. September will likely be the month where a few key decisions will be made, and the markets will hopefully start to find true direction. In this month we have the contentious Fed and the ECB decisions, where they will be disclosing their latest on interest rate and monetary policies and forwards guidance. 

To conclude, this week’ “Chart of the week” summarises the ending of the earnings season, highlighting the percentage of beats and misses by individual sector. It shows that Healthcare is leading the way, while Utilities come out as the weaker performing sector. The overall picture suggests a 74% beat rate (vs last quarter’s 75%) and an Earnings Per Share surprise of 17.8%. In summary, 40% of the companies have reported double-digit or better growth, while 8 have exceeded the 100% growth mark.


Next week our macro spotlight will be on?


  • Trade Balance – Japan


  • Manufacturing Sales – Canada
  • Producer Prices - Germany


  • Existing Home Sales – US
  • CPI Inflation - Canada


  • Comp Flash PMI – France
  • Manufacturing Flash PMI – France
  • Manufacturing Flash PMI – Germany
  • Comp Flash PMI – Eurozone
  • Manufacturing Flash PMI - Eurozone


  • Build Permits – US
  • Retail Sales – Canada
  • New Home Sales Units – US
  • New Home Sales – US
  • CPI Core Inflation – Japan

Chart of the week

Fact of the week

Trump has asked aides if it's possible to buy Greenland, according to the CNN.