Vix Pops, Market Drops. And The Saudis Plan To Stop
Traders have come to fear a low VIX, the CBOE Volatility Index that gauges price volatility in the S&P 500, because of the drama that often ensues once the VIX pops up.
By Vikram Rangala
Wednesday, May 27, 2015 - 00:00
This morning, the VIX popped and the S&P dropped. Small wonder the VIX is often called the “fear index.”
Yesterday, the S&P 500 Index fell more than 1 percent while the VIX jumped 16 percent to 14.06, its largest surge since January. Wednesday morning, the market recovered nearly half of that loss, with the S&P seeing higher volume on the buy as well as sell side after over a week of sluggish trading. Tiffany’s shares surged as the jeweler beat quarterly profit estimates while Michael Kors Holdings reported its slowest sales growth since going public, leading to a drop of 11%.
Meanwhile, the dollar came down from its largest gain in two years as G7 leaders meet in Dresden with clear signals that they intend to do whatever it takes to help Greece meet its payments to the IMF and other creditors while also implementing the economic reforms the EU wants.
On a stopover in London, US Treasury Secretary Jack Lew expressed confidence in European negotiators but warned them to be careful of a “miscalculation” that might lead to an accidental Greek exit from the euro. Greece and its European creditors have played down fears that Athens would default on a payment to the International Monetary Fund next week.
Lew’s comments echoed those of Mohamed El-Erian, chief economic adviser at Allianz, who told CNBC on Tuesday that there was now a 55 to 60% probability of a financial "accident” in which Greek and European officials lose control of Greece’s repayment schedule. Greece’s interior minister, Nikos Voutsis, threatened over the weekend to default on loan repayments to the IMF, showing that those involved in the negotiations still face considerable opposition from inside their respective camps.
Willem Buiter, global chief economist at Citi, said last Friday that while a default on debt repayments would be serious, it would not be as catastrophic as a “Grexit”—a term Buiter is generally believed to have coined. Saying that Greece has not historically been good at managing an independent currency, he said of a Greek exit from the euro with a new, alternative currency, "that would be rubbish."
Applications for U.S. home mortgages fell last week as interest rates rose, an industry group said on Wednesday. Positive economic data has increased expectations of the Fed raising its funds rate earlier rather than later.
Finally, in the “Are you sure he really said that?” category, Saudi Arabia’s oil minister, Ali al-Naimi, said on Thursday that the kingdom plans to phase out its use of fossil fuels by the middle of the century. He told a conference in Paris on business and climate change: "In Saudi Arabia, we recognize that eventually, one of these days, we are not going to need fossil fuels. I don't know when, in 2040, 2050 or thereafter."
He went on to say that Saudi Arabia planned to become a "global power in solar and wind energy" and could start exporting electricity instead of fossil fuels in coming years. The implications for global security and the economy of such a transformation are enormous.
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