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Market volatility is back as Covid and Fed uncertainty hit sentiment


22 June 2021

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 fractionally lower in extended hours early Monday, but held above the 20 mark often seen as a separator between normal and high volatility.

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. The Dow Jones Industrial Average also logged its worst week since October, and futures contracts tied to the index initially fell more than 200 points in early premarket trade on Monday before reversing course to indicate a higher open.

Monday’s choppy trade also played out in Asia, where Japan’s Nikkei 225 closed 3.3% down, and Europe, where the continental Stoxx 600 index dropped 0.8% in early trade, only to recoup its losses and advance into positive territory, returning to the flatline several times. 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.

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