It's summertime... the rupee and lira might be crashing, but major equity markets seem rather unimpressed.
From a month ago (say 24 july) the SPX is down only ~2.8%, while the eurostoxx index (SX5E bloomberg code) is actually a little bit up (0.3%).
The implied volatility levels have reacted somewhat, but mainly just at the shorter end:
If there is a sign of concern, it is in the shape of the surfaces: the skew has steepened, but really only at the shorter end (less than 1 year):
could that be driven by a return of serious demand for puts on the buy-side, maybe loosing trust in the free Bernanke put?
Time will tell: for now we note that volumes of vanillas remain worryingly low.
Overall the surfaces remain un-remarkable, within usual ranges.
In fact, remember that skews had kept on flattening till August, european 1 year skew is still towards the bottom part of its long term range, the SPX is steeper but far from the extremes (more than 30!) seen not so long ago.
Even the up-tick in vol can be seen as part of a gentle trend: the vols have been creeping up for several months, despite the spots going up (especially the longer term).
A final word of caution: the last few days have seen a return of the "normal" dynamics , i.e. "spot down, vol up", which had become less and less common.
This could be an early indication of a change in regime: time will tell, but probably the real drivers will be market exogenous once more: EM and fed tapering are on the main pages, but the european situation feels worth watching.
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