Arkus Focus November 2014
by Niall O'Connor
- Volatility trends were mixed but generally upwards during September. As with last month, trends tended to be more country-specific than asset-class specific with those in the US generally up and Europe down. Most volatilities are now medium relative to their 12-month averages.
- The curiously riskless summer and “2006” feeling we’ve had for the last few months disappeared with a bump: there were large sell-offs in equities, high yield and commodities, and these accelerated into the start of October.
- Realised volatility (of Eurostoxx equities over 30 days) fell from 15.2% to 13.5% (medium down to low) despite continuing high levels of geopolitical risk and macro uncertainty.
- Equity markets had a mixed month, with Japan up and the US down. Volatility trends were inversely correlated with price moves, North America rose back from low to medium and Europe from medium to low relative to the last 12-month average. Sector volatilities were up, at 7-12%.
- Sovereign bond price moves were slight during the month, with Europe up and the US down. The great European convergence paused with Spanish bond yields stable at 2.2%. Bond volatilities were largely unchanged, ranging from 1.1% in Japan to 3.2% in Germany (and 5.6% in Italy).
- In FX the Dollar rallied on strong jobs data and the Euro fell as the ECB missed another opportunity to support eurozone economies. Volatility changes were clearly upwards: €/£ up to 6.9% and $/€ up to 7.3%. Volatilities are mostly High compared to the last 12 months with the exception of €/Yen (medium).
- Option volatility will have been driven mostly by moves in underlying prices which were larger than of late but mixed by asset class and geography.
- Commodities prices were down across the board on slowing economic growth: Oil fell -8% and Gold -6% on the month. Volatility trends were all upwards, Oil up to 19.6% (High).
- Real Estate (equity) price moves were downwards with the exception of Japan: the US dropped -6.5%. Volatility changes were mixed: at 10.2% in Europe and 14.7% in the US: US had High volatility, Europe medium and Japan low. Alternatives’ volatilities were flat or down.
Read the full Market Risk Report here.
View the online version of our November Newsletter here.