Notwithstanding the various geo-political crises or semi-crises that flared in September, the markets managed to avoid any significant over-reaction. The wet-blanket of a trillion dollars plus of central bank cash, undoubtedly calms most nerves, but within these constraints the volatility markets are disctinctly less sanguine now than they were at the beginning of the month. The VIX index has increased from a summer low of 11% to a more long term value of 16%. Whilst no alarm bells are ringing, having any sign of life considering the Fed’s soporific action is noteworthy, especially where the realised volatility of the S&P Index is currently ~ 10% . Outside of the US the FTSE implied volatility index and the DAX implied volatilty index also rose significantly during the month, reaching levels not seen since the beginning of the year. The real standout has been the Hang Seng volatility index which reach a high of 21% this week, though this most likely reflects domestic issues.
Looking forward, the volatility indices still predict a largely benign future for the markets. However the significant disconnect between realised and implied volatility implies that those who are buying protection, are happy to be safe at what looks to be a relatively expensive price