Today is a day off in the United States due to preparations for Independence Day on July 4th. That is why the US equity or commodity markets will be closed. Also, the data on the labour market were published yesterday. They were much better than the market expected, which allowed improving sentiment among investors.
Falling volatility in the equity and currency markets could be a sign of improving sentiment. In recent days, the publication of macroeconomic data contributed to this. The Caixin PMI for services in China rose to 58.4 pts. in June from 55 pts. in May. Importantly, this is the highest value of the index since April 2010. This may be a consequence of the easing of the restrictions associated with the epidemic and the increase in demand. The number of new orders jumped the most over the last decade. Exports have also increased due to higher activity of global demand.
These could be the reasons for such positive sentiment on the markets in Asia and China. The Shanghai Composite index rose by over 2% on Friday, gaining for the fourth consecutive session. During the week it appreciated almost 5.5%, reaching its highest levels since April 2019. Besides, the US Department of Agriculture has announced that China has booked offers to buy US corn and soybean as part of the first round of sales of US supplies since Beijing asked suppliers to guarantee that their shipments will not be infected with COVID-19. The Hang Seng index rose by over 1%.
If we return to improving market sentiment and decreasing investor fears, we could look at the expected volatility in the currency options market. The monthly implied volatility for options on the AUD/USD pair fell to its lowest level in four months, going down for the seventh consecutive day. The current index amounts to 9.43 and is the lowest since March 6th. In turn, the 3-month implied volatility dropped to 9.76 and is the lowest since March 9th. We may also observe a drop in expected volatility in the case of the main EUR/USD pair and the US S&P 500 index. The market seems to think that the worst is over...
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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