VIX drops to pandemic low

Reduced volatility has supported equity prices

Chart of the Day

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Amid signs that the new US administration is hellbent on passing another major stimulus - one that some economists have even said could be too much compared to what is needed - equity traders appear to have become more confident in the outlook. Reflecting that, the VIX index of implied equity market volatility dropped back to 20.0 last week, the lowest level since the pandemic started. A 47.0, the MOVE index of bond market volatility is still lower than its pre-pandemic level, against the backdrop of ongoing central bank purchases.

Macro

The US University of Michigan Consumer Confidence Index fell by 2.8 points in February. There isn't much of a relationship between this measure and retail sales though.

UK GDP rose by 1.2% MoM in December, which still left GDP 6.5% lower than a year earlier.

In the eurozone, industrial production rose to -0.7% YoY in November. Industrial confidence there suggests the outlook remains relatively weak though.

In India, manufacturing growth rose to 1.6% YoY in December, and the three-month average rate also rose. The outlook could be determined by exchange rate trends, which looks consistent with slightly strong growth.

Markets

After both rising by over 2% on Friday, US gasoline and oil prices are back near their levels at the start of 2020.

Compared to their long-run positions in various commodities, non-commercial traders remain relatively downbeat on gasoline. They are currently most favorable on agricultural commodities.

Non-commercial traders trimmed their net longs in the safe-haven JPY and CHF last week, but also reduced their net long on the growth-sensitive CAD and raised their net short in the BRL.

Traders currently have a modest long position in the 10-year treasury and a large short in the 30-year bond, implying they are betting that the curve will steepen.

That has worked well so far. This chart shows the 30y-5y curves have steepened across the board so far this year, even in Europe where growth expectations are normally much weaker.

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