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Breakfast Bites: Volatility Remains the Theme

Rise and shine everyone.

We’re seeing markets become choppy again, but inching out a gain. China remains closed until 08 October but we saw some reversals yesterday, particularly in the ETFs and ADRs. As Mayhem pointed out, many of these had skew blown out and there was too much euphoria, so we’re seeing some adjustment there.

Commodities are pulling back a bit this morning but, overall still remain on an upward trend. Yields and the US Dollar are higher, so we’re seeing bonds lower. Yesterday, we talked about fading the TLT. Unfortunately, we saw the gap down as the market opened. Nevertheless, we may still get opportunities to fade the TLT.

The Yen is weakening. The USD/JPY is now at 146.85, as I write this. We had projected the JPY to be range-bound with 145 being the upside target for the USD/JPY. We’ve crossed that but we are coming into an area of resistance, so we’d be careful here.

We have Jobs Friday tomorrow and ahead of that we get the Challenger Job Cuts today, and the Initial Jobless claims. Many are wondering if the recent strikes and hurricane will distort this month’s data. That is unlikely because surveys are usually taken after mid-month - so that would be for September.

We also get PMIs today on the US services side. That’s also a good indicator of what’s happening with the labor market. We’ll see if the hiring/employment trends have changed there.

It would seem like much of the news has already been priced in, but there remains a level of uncertainty, and therefore, volatility will likely be the theme for October.

Chart of the Day

Goldman Sachs highlights that despite VIX hovering around the lows, vol stress in the market is at elevated levels. They calculate vol stress as a rank of skew, term structure, implied SPX and VIX implied.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)

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