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Volatility Declines despite Ominous Signs

David Becker
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Volatility Declines despite Ominous Signs

Implied volatility on US stocks moved lower on Tuesday and is poised to again retrace despite ominous signs that should have investors leery of riskier assets. Tensions in Ukraine are heating up while the world’s second largest economy continues to grow at a pace that is less than its historical norm.

China’s GDP growth slowed to its lowest level in 18 months in Q1, moderating to 7.4% year over year from 7.7% in Q4 but topping forecasts for 7.3%. The figure is below the government’s target of 7.5%, although the country’s leaders have indicated that the goal is flexible as they try to implement reform. The Peoples Bank of China remains on the sidelines and does not seem ready to kick start economic growth.

Ukrainian troops have entered the center of Kramatorsk in the eastern part of the country after retaking the town’s airfield yesterday from pro-Russian militias. Ukraine’s action in multiple areas has prompted Vladimir Putin to describe the country as being on the brink of civil war. Putin is scheduled to meet with US and EU officials this week, but there does not seem like any imminent solution to his desire to take over many part of Ukraine.

The VIX volatility index moved lower by nearly 3% on Tuesday despite geo-political issues that continue to generate tensions. The strong upward movement in US stocks reduced the need for protection allowing investors to sell implied volatility. The VIX moved down and is poised to test the 50-day moving average near 14.9% after moving as high as 18% early in the trading session on Tuesday.

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