Market Intelligence

Brexit, Credit Risk and Equity Volatility

Author: Aleksandar Adamovic November 16, 2018

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We pointed out the huge move in European credit yesterday. iTraxx main exploded to the upside. The renewed Brexit saga has reversed investors needs to “protect”. Only a few days ago iTraxx traded calmly,both absolutely and relatively speaking. This all changed as the Brexit situation deteriorated. Interestingly enough investors seem to hedge the credit risk much more extensively than what equities seem to be pricing in terms of risks going forward.

The GBP volatility spiked massively yesterday.

 

Surely, UK Brexit loser sectors were hammered yesterday, but the overall European equity-related risk seems much calmer. The truth of the fact is that the main European index, Eurostoxx 50 actually has not moved much at all in November, and continues to trade pegged around the 3200 level, despite the renewed Brexit fears.

Below chart shows the iTraxx (white) and the Eurostoxx 50 vol, V2X, (orange) over past weeks. Note how credit has come back to levels we saw during the “panic” moment in October. V2X, on the other hand, trades 20% lower compared to the equity lows in late October.

Brexit or not, AskBrokers continues watching the macro cross assets for you.

 

            Source: charts by Bloomberg

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