📝 Fall In 1-Day VIX Shows Macro-Catalysts Are Fading: Barclays Strategy

On the macro front, US economic data have stopped surprising, and have been coming very close to consensus. Tellingly, S&P 1m implied vol has dropped at each of the last seven CPI releases, and on average dropped by 1.7 vol pts on CPI days YTD, the largest drop since 1996. The importance of macro-related catalysts (CPI, FOMC, etc.) was one of the most salient features of 2022. However, the recent fall in 1-day VIX vs 30-day VIX is suggestive of the fact that this dynamic may be fading (for now).

Falling correlation is another reason for lower Index volatility. Indeed, 3m implied correlation is now close to 5yr lows for both the S&P and EuroStoxx. Importantly, in the US correlation fell across all sectors but Real Estate.

Barclays strategists expect EPS consensus to fall, the macro picture remains fundamentally challenged (until clear signs emerge that inflation will go back to target while averting a recession) , and should something ‘break’ as a result of relatively high policy rates, we would expect correlation to shoot up. In other words, we caution against interpreting the market’s recent lull as a definite sign that we out of the woods, yet.

- Barclays Global Equity Derivatives Strategy