Arkus Focus October 2014
The Return of Risk
by Niall O'Connor
- Volatility trends were sharply upwards with strong momentum during October. Almost all volatilities were High relative to their 12-month averages.
- Realised volatility (of Eurostoxx equities over 30 days) rose from 13.5% to 25.9% (low to High) on macro weakness.
- Equity markets fell in the first half but recovered dramatically in the second half of the month. Most markets finished up. Volatility trends were sharply upward throughout the month and got close to 12 month highs. Sector volatilities were up, at 11-24%. All major regions and all major sectors had High volatilities relative to the last 12 months.
- Sovereign bond prices generally rose during the month. The great European convergence paused with Spanish bond yields remaining at 2.1%. Bond volatilities rose slightly, ranging from 1.0% in Japan to 3.9% in Germany (and 5.8% in Italy).
- In FX the Dollar continued to creep upwards and the Yen dropped sharply. Volatility changes were generally upwards: $/€ up to 10.5% but €/£ down to 6.4%. Volatilities are mostly High compared to the last 12 months with the exception of €/€ (low).
- Option volatility will have been driven mostly by moves in underlying prices which were larger than of late but for equities mostly occurred intra-month. Volatility of the VIX rose to 111%.
- Commodities prices were down again on slowing economic growth: Oil fell -9% and Gold -3% on the month. Volatility trends were upwards, Oil up to 23.3% (High).
- Real Estate (equity) price moves were upwards in all regions, especially the US +10% and Japan +6%. Volatility changes were mixed: up to 17.9% in Europe but down to 12.4% in the US. All regions had High volatility. Alternatives’ Assets Volatilities were strongly up.
Read the full Market Risk Report here.
View the online version of our October Newsletter here.