We are seeing more of the same, FAANG dragging “everything” lower. As equities sell off sharply, volatilities are once again on the rise. We are seeing a pick-up in volatility across the board, but the move higher is less extreme compared to earlier spikes since the selloff started in October.

VIX continues higher and is currently trading close to the 23 level. Note we are (still) below the panic spikes we saw earlier in October (VIX at 23 prices approximately 1,4% daily moves in the SPX).



European index volatility is higher as well, but we are still trading well below the highs seen in October.



More importantly than the actual levels in VIX is the shape of the curve. We have been pointing out over past weeks that the elevated short-term volatilities have continued trading relatively “stressed”, even when the market was calmer. This has been showing “underlying” fear. Note the snapshot from today showing the various VIX futures. The UX1 is the first month and UX6 the 6-month future of VIX index.



The below chart shows the spread between the UX1 and the UX6. In “normal” calm markets the spread should trade negative, but we can clearly see it has spiked again and continues trading “inverted”. Investors are nervous and pay up for short-term protection, hence pushing short-term volatility higher than longer-dated maturities. Gamma is king here!



Credit started moving higher in Europe several weeks ago. We have been pointing out this on several occasions, last in our note “Credit Blows Out”. In early November credit versus equity markets started dislocating, credit went from performing better to totally underperforming equities. Below is a chart of the European credit, iTraxx. Note the huge move from early November.



Below chart shows Eurostoxx 50 (orange) versus iTraxx (white inverted). Note the gap where credit was performing well to this recent credit implosion.

Let’s see what the serve for Thanksgiving, but it sure doesn’t look to be an overly festive season for the markets.


Source: charts by Bloomberg