📝FX Vol Screens Dislocated Relative to Cross-Market Vol Premia: J.P. Morgan Strategy

On the surface, the past couple of weeks􏰁dollar uptick alongside higher UST yields is simply more of the same from the past couple of months — garden variety cyclical differentiation as reflected in the US􏰁s superior growth and interest rate run rates vis-à- vis the rest of the world. Yet, under the hood, something seems to have subtly shifted in terms of the tone and tenor of the overall risk market backdrop recently. Cross-market indicators have almost uniformly moved in a more risk-off direction since mid-month alongside the spike in US real yields in a way unpleasantly reminiscent of 2022, albeit without the same degree of disruptiveness.

The ~6% intra- month drawdowns in SPX and Nasdaq and the jump in VIX have understandably grabbed headlines, but cracks are also beginning to appear in hitherto resilient pockets of the fixed income world such as HY credit and Latin American rates/ FX. Indeed the anomaly is that FX vol on the whole has been strangely quiescent through the entire dollar rally since Q3, and is now beginning to screen sizeably dislocated relative to cross-market vol premia elsewhere - J.P. Morgan Strategy