As financial markets entered the third month from the day, the volatility index (VIX) became volatile again. It is important to review the past and preview the future. The past two months as per the start and end levels have remained neutral with only a 3% net increase. If more concern is given to periods between then the high of 66 in August was shocking to many with September being better with the high being at 24.
The Lahore events in this period were related to Israel and Iran escalation and US elections that even government heads around the world are concerned about. The changes within these events had a larger impact on global equities.
The current month's start has brought these events into a new level of risk as Israel looks to retaliate directly at Iran. This has a major impact on the Oil and Bond market. Oil prices are up by 10% with its cola index rising by 21%. US10yr bond yield is up by 6% with its volatility index rising by 31%.
The weeks ahead are most crucial as Israel gets persuaded by the USA not to attack Iran aggressively as it might get things out of control. But given recent events Israel's actions are difficult to predict and only when executed are they fully known. On the election front, Trump leads the odds to get re-elected as the date gets closer.
This along with economic uncertainty ahead is now keeping global equity, commodity and bond volatility at recent highs with further upside risks. The question is whether the worst-case scenario can be fully avoided or just delayed.
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