Torpor in Financial Markets Goes Global as Policy Decisions Loom

  • Gauge of volatility in equities drops to two-year low
  • Crude oil offers ray of light amid subdued bonds, currencies

Price swings in financial markets are becoming increasingly muted as investors mull the outlook for monetary policy in the world’s biggest economies.

A gauge of volatility in global equities has dropped to levels last seen two years ago and a measure of exchange-rate moves is near its lowest in a month. Asian stocks held near a 13-month high on Thursday, while European shares and S&P 500 Index futures were little changed.

While there are pockets of excitement in financial markets, price fluctuations are generally subdued. Prospects for a U.S. interest-rate increase in September faded this week after data showed slowdowns in hiring and business activity, while Japan’s central bank decides whether to add to record stimulus on Sept. 21. The European Central Bank is seen maintaining unprecedented stimulus on Thursday as President Mario Draghi updates growth and inflation projections.

“With the Federal Reserve and Bank of Japan meetings ahead of us, investors can’t make any out-sized moves before the major events are over,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo. “We have a lack of reasons to move, and have been seeing a directionless market for some time.”

The Bank of America Merrill Lynch GFSI Market Risk Index, a measure of future price swings implied by options trading on global equities, interest rates, currencies and commodities, fell this week to its lowest level since Jan. 1. Different asset classes are influencing one another by the most since at least 2008, according to a Credit Suisse Group AG gauge known as the cross-market contagion indicator that tracks price relationships in equities, credit, currencies and commodities.

The torpor in stock markets is going global.

Futures on the S&P 500 were little changed as of 11:55 a.m. London time, after the U.S. measure barely moved in the last session. The benchmark has held in a band of 1.5 percent for 39 days, the narrowest ever for that length of time.

Daily moves in the Shanghai gauge have been less than 1 percent for 17 days in a row, a phenomenon that last occurred in 2001.

A 50-day volatility measure for the MSCI All-Country World Index of shares has more than halved since the start of this month.

Yields on Treasuries due in a decade have largely been stuck in a range between 1.5 percent and 1.6 percent since the start of August. The Bank of America Merrill Lynch MOVE Index, which measures price swings in U.S. debt, is close to the lowest level since December 2014, reached Aug. 10.

The probability of the Fed boosting benchmark interest rates at its meeting this month has dropped 10 percentage points this week to 22 percent, futures prices indicate.

Oil is proving a rare exception to the subdued price moves. West Texas Intermediate crude has risen more than 7 percent in the past week amid optimism major producers will agree measures to support prices.

JPMorgan Chase & Co.’s index of global currency volatility was at 9.64 percent, equaling the lowest since Aug. 5.

The euro has held between $1.07 and $1.17 all year.

Its narrow band prompted Steven Barrow, head of currency strategy at Standard Bank Group Ltd. in London, to write an investor note on Wednesday with the headline ‘Why so stable?’

“That’s a long time to be in such a limited range,” he wrote. And yet, “it looks as if the stability will persist.”