What implied volatility says about the week ahead (and about December)
Some spots to watch
It was a fascinating week and one where the bond bulls and equity bears are hurting, and more-and-more strategists are advising clients to look at the reflation trade more readily.
The cynics would argue the steepening of the yield curve has been a position flush out and one that will re-exert itself once the data deteriorates again and suggests we are indeed in a late cycle environment. The world was long duration assets and safe-haven sectors of the financial markets in such great size - hedging against recession risk, a deterioration in trade relations and even a no-deal Brexit - that the recent news flow didn't justify that one-sided positioning from real money and leveraged accounts.
What we've seen is less bad economic data, a commitment from central banks to allow economies to run hot, with the Fed eyeing a move to inflation averaging. While the prospect that an element of tariffs, potentially even all of them, will be rolled back.
I would also consider that the markets may even by front-running a Trump presidential victory in 2020 and the idea of de-regulation and fiscal stimulus, but that, I am sure, is open to debate.
As, per each Friday I have put a video together looking at the movers and shakers in markets, with a specific focus on G10 FX. I have focused on implied volatility and the expected moves from spot, which reflects how the market sees the event risk for the week ahead.
I flagged that we are looking at a punchy ride in December, at a time when many would rather be winding down. But let's assess what we see now.
- NATO Summit - 3 to 4 December
- OPEC - 5 December
- German election - 8 December
- FOMC meeting - 11 December
- Aramco IPO - 11 December
- ECB meeting and UK election - 12 December
- US-China trade talks??