Risk assets can deal with Stormier conditions if the Federal Reserve cuts interest rates, as expected, on September 17. That’s the message from futures tied to the Vix Index, a measure of expectations of volatility to S&P 500 for the next 30 days.
The index, also called fear of Wall Street, is calculated in real time from the prices of S&P 500 options, and reflects how much investors expect to swing the market, with higher values indicating greater levels of uncertainty.
The spread between October futures contract (the next month contract) and the September contract (the contract in front of the moon)expanded to 2.2%, an intense level of historical standards, according to Data Source TradingView. The September contract expired the same day as the Fed meeting.
Meanwhile, the front contract only traces a slight premium to the cash index.
“Cash is fair compared to Sept. … but Sept. is very low compared to October futures,” Greg Magadini, director of derivatives in Crypto Derivatives Data Analytics Firm Amberdata, wrote in the weekly newsletter.
In other words, entrepreneurs are reducing the risk of the Fed meeting, which estimates that the rate dependence will maintain markets that are stable as they approach the decision.
US Central Bank is expected to lower at least 25 basic points When it meets next week, according to the CME’s Fedwatch tool. Some market participants have been positioned even for a reduction in 50 bps.
October futures, however, tell a different story, suggesting that investors expect an increase in excitement once the Fed decision is out of the way and that the rates are priced.
“The VIX Futures for September have a price risk while October can be ugly … a theme to note for the risk of risk in my opinion,” Magadini wrote.
Historically, the VIX has shown a strong negative touch with stock prices, usually rising during the bear markets and periods of stress on the market, as it decreases as stock prices progress. This means that the potential boom of volatility after the Fed’s decision may be marked with a collapse of equality.
Bitcoin is known to closely monitor the mood on Wall Street, which means that a potential explosion of volatility in stocks can quickly infiltrate the cryptocurrency market. And like stocks, the chaotic weather can be marked by bearish price action.
Since November last year, the relationship between the Bitcoin area and the 30-day indicated indices of volatility has become negative. In addition, Bitcoin’s volatility indices – BVIV and Dvol – have recently reached Record high ties Levels with VIX, featuring the growing bitcoin alignment with greater volatility trends in the market.
