VIX on 24 year low after French elections

With the French election ending in a victory for Emmanuel Macron, one more thing said to threaten global stability has made a quiet exit. For investors already looking at record-low price turbulence, the defeat of far-right candidate Marine Le Pen means even more risk removed from the table.

European stock volatility measured by the Euro Stoxx 50 Volatility Index fell to the lowest since March on Monday, even as a two-week advance in both the euro and global stocks in the lead-up to the final vote left little room for a relief rally. At the same time, the CBOE Volatility Index decreased 7.6
percent to 9.77, the lowest since 1993.

Volatility in the U.S. equity market has dissipated as stock investors whistled past geopolitical unknowns from populist politics to heightened threats from North Korea. While trade agreements, tax reform and the future of financial regulation may hang in the balance, investors have instead focused on one of the best global earnings seasons in a decade and signs of economic growth.

The VIX is down 32 percent since the first round of French voting two weeks ago. That’s happened as global equity markets rally 9 percent so far this year, buoyed by double-digit percentage gains in
European markets, led by surges in French and German shares. The explanation may lie in economic data, both in the U.S. and abroad, that has either kept up with analyst expectations or exceeded them. While the rate at which U.S. economic reports beat estimates has fallen the last month, it’s roughly equal to
where it began the year, judging by Bloomberg’s Economic Surprise Index.

Meanwhile, the Federal Reserve has brushed aside signs of weakness in the world’s largest economy. Central bankers left benchmark rates unchanged at their meeting last week but signaled they’re still on track to hike two more times this year, an expectation shared by market participants betting on the path for rates. Currently, the possibility of raising interest rates by 25 basis points at the next meeting is 95.0%, which means that on 14 June the Fed will proceed to an increase.

Source: Bloomberg

Jr Trader Petar Milanov

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