VIX spot has fallen to the low teens again, familiar territory over the past 2 years. However, this drop in equity volatility has occurred this time around alongside higher volatility in most other financial markets, particularly currencies and commodities.
The volatility has been focused in the high profile currencies, the Euro and the Yen, and the high profile commodities, oil and gold. It’s not surprising, then, to see that implied volatility for all 4 of those assets is near a 1 year high, as shown by the range graphic in this global volatility snapshot:
In contrast, the U.S. equity indices have implied volatility levels at the lower end of the 1 year range, and right in line with the 52 week average.
The global tensions in commodity markets have also caused quite a stir in countries dependent on commodity revenues, in particular Russia. The Russian ruble’s decline has accelerated with the selloff in oil over the past month. The Russian Ruble’s chart vs. the dollar indicates a crisis on hand for Russian financial markets:
Given the overall macro backdrop, the subdued volatility in U.S. equity indices is likely related to year-end dynamics as we approach the holiday season. Thanksgiving is less than 3 weeks away, and most traders and investors have positioned their portfolios accordingly into the end of the year with no major changes planned. Unless a major surprise takes place to jar market participants into action, the impact of global volatility on U.S. equities is likely going to be bottled up until the start of 2015.