Volatility is back for global stock markets, triggered by uncertainty over central banks’ plans for monetary policy and rising Covid-19 cases around the world.
The VIX volatility index, a real-time measure of volatility expectations over the next 30 days, inched lower on Monday. Last week, the VIX spiked more than 16% to its highest point since May, as markets digested a surprisingly hawkish turn from the U.S. Federal Reserve.
Matteo Andreetto, head of State Street Global Advisors’ SPDR ETF business in the EMEA region, told CNBC on Monday that with Covid cases rising, the potential for monetary tightening and high equity valuations on a historical basis, a market correction could be possible.
“I think what will most likely happen is that volatility will clearly pick up. Data on the Covid side is clearly very high, and we are seeing a level of discrepancies between the development of the vaccination programs in some of the largest countries and what is going on in emerging markets,” he said.
“That could potentially cause a difference in terms of speed of the recovery on a global basis.”
Markets have been buoyed over recent months by gradual indications of a recovery from the pandemic and consistent, unprecedentedly loose monetary conditions from central banks.
However, rising inflation has introduced speculation that central banks could look to pull back some of that stimulus sooner rather than later, a suspicion enhanced by the Fed’s announcement that it expects to hike interest rates twice in 2023.
Stephane Monier, chief investment officer at Lombard Odier, told CNBC’s “Squawk Box Europe” on Monday that the market jitters were somewhat exaggerated.
He added that the potential rate hikes were still two and a half years away, and as such, equity markets could continue to perform well in the coming months.
Reference: CNBC
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