23rd July, 2020
The VIX 'fear index' of implied equity market volatility continues to dissipate - now almost 3 points below its long-term moving average and on the verge of a return to pre-pandemic levels of February. Other financial market volatility gauges are also unwinding, with global FX volatility back down to March levels as the dollar retreats worldwide. Massive government and central bank support has helped suppress volatility, but so too has investor behaviour - which analysts reckon has increasingly tended toward greater inertia and herding in passive and quantitative strategies alongside safety hedging as global economic and political uncertainty has risen inexorably over the past decade. The net result, according to Barclays, has been to deliver lower average volatility in the face of persistent uncertainty but more frequent if temporary spikes.
Chart by Ritvik Carvalho and commentary by Mike Dolan.
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