The rout that swept through asset classes, taking oil below $30 a barrel and European and Asian stocks into bear markets, is pushing up gauges of investor stress around the world.
Bank of America Merrill Lynch Market Risk index, a gauge tracking volatility expectations for equities, bonds, currencies and commodities, has jumped to its highest level since October.
Global stocks have already lost more than $15.6tn since June — about half the gains from a four-year rally — and the yield on 10-year US Treasuries fell below 2%.
US markets were closed yesterday for Martin Luther King Day.
The Bloomberg Dollar Spot Index hit a record high, while the Bloomberg Commodity Index hit its lowest ever.
“It’s a global growth-type theme— the volatility in Chinese stocks and oil prices is pushing everything else,” said Jasper Lawler, a London-based market analyst at CMC Markets.
“People are protecting against another leg lower.
Part of the reason for the downturn in the market is the worry the Fed got it wrong,” he said.
Concern that China’s slowdown will hurt the global recovery has taken over at a time when the Federal Reserve is tightening its monetary policy.
US economic data are also falling short of projections, stoking worries that the Fed’s December rate increase, the first in almost a decade, may have come too soon.
The Chicago Board Options Exchange Volatility Index for US equities, also known as the VIX, had closed last week at its highest level since September.
Yesterday, Europe’s VStoxx Index reached its highest level since August in intraday trading.
The JP Morgan Volatility index for Group-7 currencies has jumped 11% this year, and the Merrill Lynch Move index of implied volatility in US Treasuries has rallied 15%.
Bank of America’s Market Risk index ended last week at -0.04 from minus -0.39 at the start of the year.
In 2015, it reached 0.17, its highest since January 2012, when Europe was struggling with its debt crisis.
The MSCI All-Country World Index fell 0.4% at one stage yesterday, extending its lowest level since 2013.
However, while last week’s losses capped an 8% tumble that equalled the worst start to a year on record, they see enough optimism left to keep gyrations coming.
“Wholesale panic” is what’s needed before the market turns, according to Scott Minerd, who oversees $240bn for Guggenheim Partners.
“You start to see a huge surge in volatility because everybody is just trying to get through the exits, and they´re pushing prices down just to get out of the positions.”
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