What no Volatility?
Bond and Forex Volatility being sold to the lows, US yields at the bottom of the range, China bond yields falling, and moving averages crossing for lower….
US CPI, G7, FOMC, Jackson Hole, more Biden stimulus…
In client calls earlier this week, and following our recent reports, the focus has been on CPI data concerns and market reaction.
US CPI base effects will start to drop out after May’s data (hence the Fed’s ‘transient’ comments), therefore year on year data should start to improve. In the real world, however, producer prices started to pick up again by the end of May....
Despite the PBOC increasing the Forex Reserve Requirement Rate from 5% to 7%, USDCNH continues to trade below 6.40, and has now started to impact on Chinese yields, where long term moving averages are crossing for lower. Global yields may have started to follow.
...in the week following US Unemployment data, yields have dropped over 10bp. TYA futures recently left a Double Bottom, signalling a move higher, (lower yields).
Equity Volatility has fallen to the lows of April and May, VIX circa 17%, and despite problems in India, the India VIX has recently fallen below 16%, for the first time in months.
Selling Volatility at current low levels might seem a risk, but then the Chinese Forex and Bond markets have led the global trends, and the PBOC may have started to buy USD against the Yuan, which will go into Treasuries...
Macro Thoughts Ltd.
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