The VIX Volatility Index, also known as the market’s preferred ‘fear gauge’, roared back to life this past week. On Wall Street[1], futures tracking the Dow Jones, S&P 500[2] and Nasdaq[3] 100 sank 0.92%, 1.78% and 3.05% respectively. Will volatility remain elevated in the coming week, or is this near-term noise?
There were two notable drivers of volatility to keep an eye on. The first is an increasingly hawkish Federal Reserve after US inflation surprised to the upside, again, for January. Expectations for a 50-basis point rate hike, and to a certain extent an emergency rise before then, have been increasing. That has helped push the US Dollar[4] and Treasury yields to the upside.
Meanwhile, US intelligence reported that Russia could invade Ukraine this coming week[5]. WTI crude oil prices[6] surged, closing at another 2022 high as US$ 100 per barrel neared. The Euro[7] also dived, thanks to a combination of Russia-Ukraine tensions and ECB President Christine Lagarde downplaying hawkish monetary policy bets in the wake of February’s interest rate decision.
Unsurprisingly, gold prices[8] surged to wrap up last week as geopolitical risks between Russia and the west climbed. Still, down the road, the anti-fiat yellow metal still must contend with a rising US Dollar and government bond yields. The anti-risk Japanese Yen[9] gained as the sentiment-linked Australian and New Zealand Dollars faltered.
Ahead, outside of Russia-Ukraine tensions, FOMC[10] meeting minutes are on tap as well as US retail sales. Hawkish commentary risks spooling market volatility and benefiting the US Dollar. Earnings season is still in play, with companies like Walmart and Airbnb reporting. What else is in store for
