Link to Report: Macro Volatility Digest
WHAT STANDS OUT:
- Implied volatilities declined across asset classes last week on the back of strong Tech earnings and Chair Warsh’s comments at Jackson Hole. US 2-year yield jumped higher as investors priced in more hawkish Fed policy, with the OIS implied probability of a rate hike at the next FOMC meeting increasing from 40% to now 60%. Despite the hawkish shift, interest rate volatility declined wk/wk on the back of the Fed’s renewed focus on fighting inflation.
- Equity volatility fell across the board, with 1M implied vol now near a 1-year low across multiple US, European, and EM indices. While short-term volatility remains anchored by strong equity fundamentals, rising uncertainty over the outlook for rates & inflation has helped keep longer-dated equity volatility more elevated. The SPX® term structure, as measured by the difference between 1Y vs. 1M implied volatilities, has steepened to the 96th percentile high.
- Stronger than expected Tech earnings (as seen last week with NVDA) have helped compress the volatility risk premium for Tech stocks, as fears over the AI trade have subsided. This can be seen in the QQQ-SPX vol spread which has fallen by more than half since June. It can also be seen in the normalization of single stock volatility post earnings, with the VIXEQ-VIX Index spread falling by over 14 pts in recent weeks. While the spread is off its all-time highs, it’s still elevated by longer-term historical standards, trading in the 90th percentile high over the past 10 years.
Chart: VIXEQ-VIX Spread Narrows Post Earnings
