Guest post by Vix and more.
Anxiety over the outcome of the U.S. fiscal cliff topped the list of investor fears about the stock market for the third week in a row, outpolling the European sovereign debt crisis, which finished a distant second, and U.S. elections, which edged out weak earnings for third place.
With 65% of responses coming from U.S. voters, the poll results were once again skewed toward an Americentric perspective. Three weeks into this poll, it appears as if geographical and temporal proximity are having a strong effect on respondents. For third week in a row, U.S., respondents were much more concerned about events in their own country. For example, the fiscal cliff outpolled the European sovereign debt crisis by 14.8% in the U.S., while non-U.S. respondents had these two issues deadlocked in a tie for first place. Similarly, 13.9% of U.S. respondents cited U.S. elections as their top worry, while just 5.3% of non-U.S. respondents placed U.S. elections at the top of the list.
Guest post by Vix and more. Given all the drama in the euro zone, not to mention the fiscal cliff, the various difficulties in China, continued unrest in the Middle East and Northern Africa, etc. it is more than a little surprising that the CBOE Volatility Index (VIX) has failed to trade above 30.00 this year.
In fact, with a maximum VIX of just 27.73 for the year, 2012 could mark the first time in 15 years (if one excludes the great Greenspan liquidity bubble from 2004 – 2006) that the VIX has not made it out of the twenties.
How does 27.73 compare as an annual high in the VIX? Since 1990, the mean high in the VIX has been 37.90 (inflated somewhat by the 2008 high of 89.53), while the median high VIX has still been a reasonably lofty 35.93.
This is not to suggest that the markets have been mispricing SPX options (and therefore the VIX) for most of 2012, only to note that there are certainly quite a few chapters remaining in the European sovereign debt crisis and the fiscal cliff drama, several of which will unfold before the year is over.
What is the number one fear concerning investors at the moment? Vix and more provides some fresh facts.
For the second week in a row, investors cited the U.S. fiscal cliff as the top risk to the stock market, followed closely by fears about the European sovereign debt crisis. Concerns about weak earnings, a distant third last week, gained significant ground as Apple (AAPL) and others continued to report disappointing earnings and revenues while guiding future expectations lower.
As was the case last week, geography appears to have a significant influence on results, with a clear Americentric bias coming from U.S.-based respondents. In the U.S., for instance, concerns about the fiscal cliff outpolled the European sovereign debt crisis by 9.5%, but outside of the U.S. the European sovereign debt crisis topped concerns about the fiscal cliff by 8.2%. Similarly, 15.2% of U.S. respondents cited U.S. election uncertainty as the biggest risk to stocks while just 5.5% of non-U.S. respondents judged U.S. elections to be the top risk factor.
With Google stealing a lot of attention, let’s not forget about the European mess. Latest out of the German think tank, via Spiegel.
A Greek euro exit on its own would have a relatively minor impact on the world economy, but if it causes a chain reaction leading to the departure of other southern European nations from the single currency, the economic impact on the world would be devastating, a German study warned on Wednesday.
The global economy expanded by just 2.8% in the year to the second quarter, according to The Economist’s measure of world GDP (see chart). That is the slowest rate since the end of 2009, when recovery from savage recession in the wake of the financial crisis was getting under way. The most perturbing aspect of the current slowdown is that the weakness is so widespread, affecting emerging economies as well as rich countries.
The most fragile economy in the rich world is that of the troubled euro area, where GDP shrank by 0.2% (an annualised decline of 0.7%) in the second quarter, leaving it 0.4% smaller than a year earlier. Beset by fears about a possible Greek exit and a bigger bail-out for Spain (which this week received a rescue request of its own, from Catalonia’s regional government), the euro zone is sliding ever deeper into the mire. A composite index of output in manufacturing and services from Markit, a research firm, based on purchasing-manager reports in July and August, is pointing to a further fall in GDP in the third quarter. (Full article here).
About 80.9 percent of Greeks believe Greece should struggle to stay within the eurozone “at any cost,” fresh opinion polls showed on Wednesday.
Some 45.4 percent of respondents in a survey conducted by GPO firm for local private television Mega channel said that they regarded as most probable a Greek exit from the European common currency. And 48.4 percent of the respondents said that such a prospect was less likely.
But they don’t like the austerity measures that staying in the Euro entails:
About 77.8 percent expect the next government to emerge from the June 17 general elections to renegotiate the harsh austerity terms of the two bailout deals reached since May 2010 with international lenders to avoid a disorderly default
France is pressing the EU to adopt a financial stability package to stem the eurozone crisis, believing negative market reaction to the €100bn bailout of Spain’s banks shows the need for more comprehensive action. Ahead of the EU summit due on June 28, Paris is set to propose a package of measures to put the European Central Bank in charge of bank supervision and to use the European Stability Mechanism, the new €500bn eurozone rescue fund due to come into force next month, to recapitalise banks directly. http://www.ft.com/intl/cms/s/0/a732fdbe-b553-11e1-ad93-00144feabdc0.html#axzz1xe4lV9a0
Bankers’ bonuses across the European Union are set to be limited by law, with many bank lobbyists admitting in private that they have lost the fight against a European Parliament initiative to limit the size of bonuses relative to salary. Some banks still hope to increase the proposed ratio from 1:1 to 2:1 or beyond, while others are trying to limit the restriction to upfront cash bonuses, excluding deferred payouts. But many bankers now accept the principle of a ratio as inevitable. http://www.ft.com/intl/cms/s/0/9b023d40-b57e-11e1-b8d0-00144feabdc0.html#axzz1xe4lV9a0
Moscow forcefully rejected on Wednesday Hillary Clinton’s accusation that Russia was supplying Syria with helicopter gunships that could be used against civilians, as Syria announced it had “cleansed” the rebel town of Haffa of armed fighters. Speaking in Tehran, Sergei Lavrov, Russia’s foreign minister, said Moscow was instead “completing contracts that were signed and paid for a long time ago. All of them are contracts for what are solely air defence systems.” http://www.ft.com/intl/cms/s/0/5f277e60-b561-11e1-ad93-00144feabdc0.html#axzz1xe4lV9a0
Spain’s borrowing costs hit a euro-era high on Tuesday amid sagging investor confidence that Europe can prevent its debt crisis from worsening and wrangling among policy makers over how to implement cross-border banking supervision. The yield on Spanish benchmark 10-year debt hit 6.8 per cent just days after eurozone finance ministers agreed a €100bn bailout package for the country’s banks. The move was accompanied by rising bond yields in countries deemed less risky, such as Germany and the UK, where market interest rates have been at record lows.http://www.ft.com/intl/cms/s/0/f29cdbf4-b4a8-11e1-aa06-00144feabdc0.html#axzz1xe4lV9a0
Greece returns to the polls on Sunday in another attempt to elect a viable government, and the outcome of the election remains highly uncertain. Despite the broad-based support for euro membership among all major Greek parties and the general public, S&P is of the view that there is at least a one-in-three chance that Greece will exit. A Greek exit could be brought about almost by accident. A Syriza-led government that fundamentally rejects the reforms agreed with the “troika” – the International Monetary Fund, European Commission and European Central Bank – could lead to a suspension of external financial support. http://www.ft.com/intl/cms/s/0/37a912b2-b468-11e1-bb2e-00144feabdc0.html#axzz1xe4lV9a0
Hillary Clinton accused Russia of sending attack helicopters to Syria in a move that could “dramatically” escalate the conflict, as a senior UN official claimed the country was already in a “civil war”. In some of the toughest language the US has used about Russia’s support for the regime of Bashar al-Assad, the US secretary of state said Moscow’s claims that its arms transfers to Syria were having no impact on the conflict were “patently untrue”. http://www.ft.com/intl/cms/s/0/ceeb4620-b4b5-11e1-bb2e-00144feabdc0.html#axzz1xe4lV9a0