The VIX fear index futures contract rose yesterday to its highest level since November, but the scale of the increase was the largest since March. The futures contract rose from 25,3 to 34,3 pts. Several factors seem to have contributed to the rise in uncertainty, including corporate earnings, the vaccine topic and the frenzy on Wall Street over investor activity in the options market and companies with the largest short positions.
Major stock indexes in Europe seemed to fall on Thursday, as did indexes in Asia. The day before, Wall Street saw a large sell-off and declines in stock prices.
In Europe, the pandemic continues to weigh on investor sentiment as countries continue to struggle with record numbers of infections, hospitalizations and deaths. Thus, raw restrictions are being maintained or new ones are being introduced. At the same time, the pace of vaccine introductions is slower than expected. Vaccine companies AstraZeneca and Pfizer have announced in recent weeks a halt in supply. This, in turn, may give rise to a conflict between the European Commission and pharmaceutical companies that are not fulfilling their contracts. The situation is becoming increasingly tense. Economic growth forecasts for 2021 are being lowered. The German economy is expected to grow at a rate of 3 percent, not 4.4 percent as previously thought. This could also affect the declines in the German DAX index.
In the USA, where the market is very heated by the phenomenon of short squeeze on many companies (this means that hedge funds are forced by the huge demand for a given stock to close short positions and buy back shares, which increases their price even more). Thus, implied volatility may increase, forcing some investors to abandon shares due to the increased risk of higher volatility.
On Wednesday, the U.S. Securities and Exchange Commission (SEC) said it is aware of what is happening and is actively monitoring volatility in the options and stock markets, following the dramatic rise in share prices of companies like GameStop. On Wednesday, the Dow Jones fell 2.1 percent to 30303. The S&P 500 index fell 2.6 percent to 3751, and the Nasdaq similarly fell 2.6 percent to 13271.
The mood on Wall Street is not improved by the fact that Congress has not yet approved Joe Biden's $1.9 trillion bailout plan, so the Democrats are preparing a second contingency plan. The later it is implemented, the worse for the economy. Investors may have also cooled off after the Federal Reserve mentioned on Wednesday that the U.S. economy will struggle in the coming months until widespread vaccinations help the economy rebound.
Yesterday, the Fed left interest rates unchanged near zero and reiterated its promise to continue buying bonds until it makes significant progress toward its goals. Which means an improving labor market and rising inflation. Powell said it was too early to discuss tapering asset purchases and that if the Fed was thinking of starting to taper the program, it would announce well in advance, Bloomberg reported.
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.
76.44% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
