Volatility In Measuring Volatility

Global markets have been seesawing due to extreme cues from different parts of the world. Markets have been going next level crazy due to these mixed cues causing movement that’s almost hysterical. The CBOE Volatility Index (VIX) has been a perfect indicator of this mania. On Monday, the VIX jumped alarmingly by 34%, close to 18.99. This level has been the highest since August 2011, when the index jumped this high due to the US losing its AAA rating and due to uncertainty over Europe. On Tuesday, the very same index dropped down by 11%. Talk about volatility in measuring volatility!

The global mood trenched as fears of the return of the Euro-zone crisis popped up. The cause of these fears was the comeback of scandal-ridden former Italian Prime Minister Silvio Berlusconi. No, he didn’t win the recent elections to mark an actual full-fledged comeback. He only won enough support from the masses of Italy to cause a failure in the elections of Italy as there emerged no clear winner. Although Pier Luigi Bersani’s Democratic Party narrowly won in the lower house, no control in the upper house has triggered a fresh set of worries. European markets closed yesterday with losses in the range of 1.34% and 2.67%. This also caused a heavy downfall in Asian markets.

But then came the US. Upbeat economic data and Federal Reserve Chairman Ben Bernanke’s sweet words had the markets cheering. So much, that gains on American indices were in the range of 0.44% and 0.84%. This also led to a positive opening for Asia with the Hang Seng and Shanghai Composite trading higher by 0.33% and 0.42% respectively, today. Even the SGX Nifty is trading higher by 7.50 points at the moment. So, what’s so positive that the mood suddenly changes?

Reports have been indicative of US home sales being at their highest pace since mid-2008. Home prices too have been at their best since the last seven years. Moreover, consumer confidence is at a three month high. What more do you need to show improving signs in an economy? Apart from this, Ben Bernanke favoured continuing the USD 85 billion per month bond-buying programme terming the move as clearly beneficial.

Now let’s get back to domestic trends. The Railway Budget was expected to catch limelight but global cues pushed it aside and took centre-stage. The major move in the budget was the proposal that freight rates be linked to fuel prices in an attempt to pare losses, which has been towards turning the situation around for the Indian Railways. Although the budget was positive, there were no major fireworks. Stock prices of Kalindee Rail Nirman, Texmaco Rail and Engineering and Titagarh Wagons declined by 11.6%, 11.44% and 8.1% respectively. The markets will now turn their attention towards the Union Budget to be announced tomorrow. For today however, ruled by global cues, markets are expected to open positively.