Relative Volatility Springs Higher

If we take the differential between volatility in the Stoxx 600 (Europe) versus that of the S&P 500 (United States) as a proxy for relative levels of market fear, it might be useful to note that it broke to an all-time high on Monday–surpassing levels reached in 2011 and last year.

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Either variable on its own doesn’t exactly scream ‘signal’, but the combination of much more subdued volatility in the U.S. versus the gradual uptrend in European markets produces a stark contrast.

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With all of the ECB’s monetary easing, fairly benign economic data releases, and relative quiet on the peripheral (i.e. Greece) front, we find this strong divergence to be somewhat surprising.