Concerning signal from VVIX

Hasn't ended well in the past

Chart of the Day

The VIX index of implied-equity market volatility rose to above 23 on Friday, up by 3 points over last week. The even larger rise in the VVIX, which measures the volatility of the VIX itself, suggests the VIX could yet rise further. That implies there is a risk of an equity market sell-off, although it should be noted there is potential this week for sentiment to get a boost from a US fiscal stimulus deal or, over in Europe, a Brexit deal.

Macro

The US University of Michigan consumer sentiment index rebounded in December despite worsening Covid outbreaks in much of the country. A good sign, although the index has at best a loose relationship with retail sales.

While US consumer inflation only inched up in November, the much larger rise in producer price inflation may be a signal that further gains in consumer prices are to come.

Manufacturing production in India continued to recover in October - exchange rate developments would normally be consistent with positive production growth.

Markets

The CFTC commitment of traders report showed traders remained significantly net short the USD.

The slight increase in the net USD short was partly because traders are rebuilding their net longs in the euro, even though the single currency has already risen strongly.

Traders remain net long copper, although the latest rally has not convinced more to join the party.

What prices jumped by a further 3% Friday, and have now regained most the ground they lost just a few weeks ago.

Cyclicals could be the one to watch this week if VIX does rise further - they finished Thursday near a record high, and only edged down Friday.

While the GBP fell a further 0.5% Friday, it has rebounded strongly in Asia trading amid signs the UK and EU will continue negotiating despite blowing past another Brexit deadline.

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