Risk assets can face more storms if the Federal Reserve reduces interest rates, as expected, on September 17. That is the message of futures linked to the VIX index, a measure of volatility expectations in the S&P 500 for the next 30 days.
The index, also called Wall Street’s Fear Gauge, is calculated in real time from the prices of the options in the S&P 500, and reflects how much investors expect the market to balance, with higher values that indicate higher levels of uncertainty.
The differential between the October futures contract (the contract next to the next) And the September contract (The first month contract)It has expanded to 2.2%, an extreme level according to historical standards, according to Data Source TradingView. The September contract expires the same day as the Fed meeting.
Meanwhile, the first month contract is listed only with a slight premium to the cash index.
“The cash is fair compared to September … but September is extremely low compared to the futures of October,” wrote Greg Magadini, director of derivatives of the data analysis of Cryptographic Derivatives Amberdata, in the weekly bulletin.
In other words, merchants are discounting the risk before the Fed meeting, it is committed to the fact that the rate of rate will keep the markets stable as they address the decision.
The US Central Bank is expected to use its objective rate in at least 25 basic points when it meets next week, according to the CME Fedwatch tool. Some market participants are even positioned for a 50 BPS reduction.
However, October futures tell a different story, which suggests that investors anticipate greater turbulence once the Fed decision is out of the way and the target cuts have a price.
“The Futures Vix for September have set the risk, while October could be ugly … an issue to take into account for risk assets in my opinion,” Magadini wrote.
Historically, the VIX has exhibited a strong negative correlation with the prices of the shares, which generally increase during the bearish markets and the periods of market stress, while decreases when the prices of the shares advance. It means that the rise of potential volatility after the Fed decision could be marked by a decrease in actions.
Bitcoin It is known that the mood is closely traces on Wall Street, which means that an explosion of potential volatility in the shares could quickly spill into the cryptocurrency market. And like the shares, the turbulent period could be marked by the action of bearish price.
Since November of last year, the correlation between the Bitcoin spot price and its implicit volatility rates of 30 days have become negative. In addition, Bitcoin, Bviv and DVOL volatility indices have recently reached record levels with VIX correlation, highlighting the growing Bitcoin alignment with wider marketing trends in the market.
