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📝 Lower Equity Volatility May Persist Over The Summer: Barclays Strategy

As we approach the half-way mark for 2023, both SX5E and SPX are up -15% year-to-date. While the narrative for US equities in Q2 has been all about its narrow leadership, for the SX5E as the narrow trading range that stands out Indeed, the SX5E has barely moved since the end of Q1, and has inhabited extremely tight trading range, rarely seen in past 30+ years (Figure 11).

As we have highlighted before (see How to enjoy the Luxury of Al without fear, 31 May 2023), part of the reason behind such a tight trading range, and therefore lower equity volatility, is strong factor/sector rotations that mask any perturbations beneath the surface from the index level. This can be evidenced in extremely low SX5E realised correlation, trading in its 1st percentile over 20t years, which has also led to historically low implied correlation (7th percentile) - see Figure 12.

Jul and Aug are seasonally quietest months for 5X5E options, with average volume -20% lower than other months in a typical year. Consequently, equity volatility also tends to be biased lower during these months. - Barclays Strategy



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